UC-NRLF 


B   M   713   bl3 


iiifiri'i'i 

h;H.!M!SK  111 


I 


I  r 


ii 


ii.i; 


:..i! 


iij  a 

i  if  i!  pilii  i';i';;- 


'1  ij'i  t 


m 


ill 


i 

mm 


m\h 


lijljiiljii:/ 
''■ill'  I  I'll "''/ 

iii'Jl!  I  111- i;i;.' ' , 
Wis  'lil-  • 

i !  r   i 


iiiiiiii;' ■ 


^BERKELEY 
LIBRARY 

UNIVERSITY  OF 
>y^    CALIFORNIA 


From 

the 

personal 

collection 

of 


Ewald  T.  Grether 

Professor  and  Dean,  1924-1966 
School  of  Business  Adnninistration 


V  — 1 


Modern  Business 


A   SERIES    OF    TEXTS    PREPARED    AS 

PART   OF  THE   MODERN  BUSINESS 

COURSE  AND  SERVICE  OF  THE 

ALEXANDER  HAMILTON 

INSTITUTE 


ALEXANDER  HAMILTON  mSTTTUTE 
NEW  YORK 


Modern  Business 

EDITOR-IX-CHIEF 

JOSEPH  FRENCH  JOHNSON 

Dean,  New  York  University  School  of 
Commerce,  Accounts  and  finance 

MANAGING   EDITOR 

Roland  P.  Falkner 

associate  editors 
Leo  Greendlinger,  Charles  W.  Hurd 


Volume  Titles  Authors 

1.  Business  and  the  Man Joseph  French  Johnson 

2.  EcoNo^nics  OF  Business The  Editors 

3.  Organization  and  Control       ....  Charles  W.  Gerstenberg 

4.  Plant  Management Dexter  S.  Kimball 

5.  Marketing  and  Merchandising    .      .      .  The  Editors 

6.  Advertising  Principles Herbert  F.  de  Bower 

7.  Salesmanship  and  Sales  Management    .  John  G.  Jones 

8.  Credit  and  the  Credit  Man     ....  The  Editors 

9.  Accounting  Principles   .     .     .     .     .     .  The  Editors 

10.  Cost  Finding Dexter  S.  Kimball 

11.  Corporation  Finance                 .      .     .      .  William  H.  Walker 
13.  Business  Correspondence Harrison  McJohnston 

13.  Advertising  Campaigns Mac  Martin 

14.  Railway   Traffic Edwin  J.  Clapp 

15.  Foreign  Trade  and  Shipping  ....  J.  Anton  de  Haas 

16.  Banking Major  B.  Foster 

17.  Domestic  and  Foreign  Exchange      .     .  E.  L.  Stewart  Patterson 

18.  Insurance The  Editors 

19.  Office  Management       .     .      .     .     .     .  The  Editors 

20.  The  Exchanges  and  Speculation     .      .  Albert  W.  Atwood 

21.  Accounting  Practice  and  AuDrnNO  John  T.  Madden 

22.  Financial  anIb  Business  Statements  Leo  Greendlinger 

23.  Investment Edward  D.  Jones 

24.  Business  akb  the  Government     .     .     .  Jeremiah  W.  Jenks 


MARKETING 
AND  MERCHANDISING 


BY 

THE  EDITORS 

IN  COLLABORATION  WITH 

RALPH  STARR  BUTLER  akd  JOHN  B.  SWINNEY 


MODERN  BUSINESS 
VOLUME  5 


ALEXANDER  HAMILTON  INSTITUTE 
NEW  YORK 


BUS.&ECON. 
LIBRARY 


COPYRIGHT,  1918,  1919,  BY 

ALEXANDER  HAMILTON  INSTITUTE 


COPYRIGHT  IN  GREAT  BRITAIN,  1918,  1919,  BY 

ALEXANDER  HAMILTON  INSTITUTE 


The  title  and  contents  of  this  volume  as  well  as  the 
business  growing  out  of  it,  are  further  protected 
by  laws  relating  to  trade  marks  and  unfair  trade. 
All  rights  reserved,  including  translation  into 
Scandinavian. 


Registered  trade  mark,  Reg.  TJ.  S.  Pat.  Off.,  Marca 
Registrada,  M.  de  F. 

Made  in  U.  S.  A. 


PREFACE 


fcoai 


In  all  business,  profits  depend  ultimately  upon  the 
ability  to  sell  goods  and  services  advantageously.  A 
factory  may  possess  every  facility  for  maximum 
production  at  minimum  cost,  but  unless  the  selling 
methods  are  carefully  designed  to  meet  the  peculiar 
requirements  of  the  product  and  of  the  market,  the 
business  cannot  be  conducted  at  a  profit.  The  profes- 
sional man  and  the  business  house  dealing  chiefly  in 
services  instead  of  goods  likewise  find  the  basis  of 
profit  largely  in  the  ability  to  get  in  touch  with  those 
who  need  what  they  have  to  offer  and  in  satisfying 
that  need  in  the  most  acceptable  manner. 

The  present  text  deals  with  the  more  general  selling 
problems  both  of  the  manufacturer  and  the  dealer. 
Under  the  heading  "Marketing"  it  is  the  point  of  view 
of  the  manufactm-er  that  dominates  the  treatment. 
Under  the  heading  "Merchandising"  the  Text  is  con- 
cerned with  the  dealer  both  at  wholesale  a^d  at  retail. 

The  Modern  Business  Text  in  further  volumes 
takes  up  special  problems  of  selling.  Two  different 
expressions  of  the  selling  idea,  advertising  and  sales- 
manship, are  presented  in  separate  Texts,  while  the 
general  principles  of  salesmanship  are  exemplified  in 
the  Text  on  Business  Correspondence.  Further- 
more, it  may  be  noted  that  some  aspects  of  the  market- 


vi  PREFACE 

ing  of  raw  materials  receives  attention  in  the  Text  on 
*' Speculations  and  the  Exchanges." 

Our  obligation  to  the  two  collaborators  in  this  vol- 
ume is  gratefully  acknowledged.  In  one  sense  it  is 
general  rather  than  specific  since  their  contributions, 
dealing  often  times  with  the  same  topics  from  slightly 
different  points  of  view,  have  in  the  present  volume 
been  fused  into  one. 

The  Editors. 


TABLE  OF  CONTENTS 

PART  I— MARKETING 

CHAPTER  I 

MODERN  DISTRIBUTION 

SECTION  PAGB 

1.  Producer  and  Consumer 3 

2.  What  Determines  the  Distributing  Machinery       .  4 

3.  Increased  Specialization  in  Industry    ....  5 

4.  Large-Scale  Production 7 

5.  Economic  Basis  of  Modern  Marketing      ...  7 

6.  Selling  Problems  Versus  Manufacturing  Problems  8 

7.  Who  Is  a  Middleman.? 9 

8.  Greatest  of  the  Middlemen 10 

9.  Middlemen  and  the  Manufacturer 11 

10.  Middlemen  and  the  Consumer 11 

11.  Aid  in  Stabilizing  Prices 12 

12.  Middleman  as  a  Producer 12 

13.  Four  Kinds  of  Utilities 14 

14.  Some  Middlemen  Must  Go 15 

15.  Middlemen  and  Competition 16 

CHAPTER  II 

THE  FIELD  OF  MARKETING 

1.     Growing  Importance  of  Distribution    .       ,      .       .  19 

19 
20 


2.  What  Is  Marketing.?      .       .       .       . 

3.  Agencies  Used  to  Reach  Markets    . 

4.  Boundaries  of  the  Market  . 

5.  Mapping  Out  a  Plan  of  Campaign 

6.  Single  Purpose  of  Selling  Activities 


23 
24 


viii         MARKETING  AND  MERCHANDISING 

SBCTION"  PAGK 

7.  Need  for  Studying  Marketing  .      .     , .      .      .      .25 

8.  Survey  of  the  Marketing  Field  .      .      .      .      .      .25 

CHAPTER  III 
STUDY  OF  THE  PRODUCT 

1.  Necessary  Considerations  Before  Marketing  .      .  27 

2.  Testing  the  Product 27 

3.  Tests  for  Quality 28 

4j.  Raw  Materials 29 

5.  Plant  Capacity 30 

6.  Labor  Supply .31 

7.  Costs  and  Profits 32 

8.  Influence  of  Price 32 

9.  Naming  the  Product       .       .      .       .      .      .      .      .  34 

10.  Quality  of  Attraction 36 

11.  The   Container 37 

12.  Examining  the  Product  for  Selling  Points      .      .  38 

13.  Demand  for  the  Product      .......  39 

14.  Estimating  Consumption 41 

15.  Testing  Out  Demands  in  Advance 42 

16.  Demand  Aff^ected  by  Nature  of  Goods  ....  43 

17.  Seasonal  Demand 44 

18.  "Family  of  Products"    . 46 

CHAPTER  IV 

STUDY  OF  THE  MARKET 

1.  What  Constitutes  the  Market 48 

2.  Sources  of  the  Market 49 

3.  Geographical  Limits  of  Markets 60 

4.  Methods  of  Making  Purchases 51 

6.  Tendency  of  Market  to  Increase  or  Decrease  .      .  54 

6.  Competitive  Influences 65 

7.  Transportation  Limits  Markets 67 


CONTENTS  ix 

CHAPTER  V 

TRADE  CHANNELS 

SECTION  PAGE 

1.  Trade  Channels  and  Their  Development    ...  60 

2.  Development  of  Trade  Channels 60 

3.  Old  Chain  of  Distribution 61 

4.  Middlemen  Decreasing 61 

5.  Competition  in  Present-Day  Marketing      ...  63 

6.  Methods  of  Trade  in  Selling  Staples 63 

7.  Functions  of  the  Manufacturer       .       .       .       .       .64 

8.  The  Jobber 65 

9.  The  Retailer .  65 

10.     The  Consumer 65 

CHAPTER  VI 
SELLING  TO  THE  JOBBER 

1.  Consumer  Unfamiliar  with  Jobber's  Service    .      .  67 

2.  Jobber  Specializes  in  Distribution 67 

3.  Jobber  Provides  Sales  Force 68 

4.  Jobber's  Intensive  Cultivation  of  Markets       .       .  68 

5.  Jobber  Gives  Storage  Service 69 

6.  Jobber's  Credit  and  Accounting  Service     ...  69 

7.  Using  Jobber's  Services  in  Part 70 

8.  Making  the  Jobber's  Service  More  Profitable  .       .  71 

9.  Jobber  and  the  Private  Brand 71 

10.  Why  Manufacturers  Make  Private  Brands     .       .  73 

11.  Profit  on  Private  Brands 74 

12.  Dangers  in  Making  Private  Brands      ....  75 

13.  Should  All  Goods  Bear  Manufacturer's  Name.?    .  76 

14.  Summing  Up  the  Case  of  the  Private  Brand    .      .  76 

CHAPTER  VII 

WHOLESALE  MIDDLEMEN 

1.     Functions  of  Other  Types  of  Middlemen  ...  79 


X  MARKETING  AND  MERCHANDISING 

SICTION  PAGE 

2.  Overlapping  of  Functions   .       .       .      .       .      .      .80 

3.  Manufacturer's  Selling  Agent 80 

4.  What  the  Sales  Agent  Does 81 

5.  Classes  of  Selling  Agents 8S 

6.  The  Agent's  Compensation 83 

7.  Mill  Agents 83 

8.  Factors,  Commission  Merchants  and  Brokers       .  84 

9.  Functions  of  the  Commission  Merchant     ...  85 

10.  Necessity  for  the  Commission  Merchant    ...  85 

11.  Activities  and  Compensation  of  Commission  Mer- 

chants   86 

12.  Commission  Merchants  and  Manufacturer's  Agent  86 

13.  Commission  Contracts 87 

14.  Rates  of  Commission 87 

15.  How  the  Commission  Merchant  Aids  the  Manu- 

facturer       88 

16.  Loans  and  Advances 89 

17.  Tl^e  Banking  Function 89 

18.  The  Broker 90 

19.  Extent  of  Merchandise  Brokerage 90 

^0.     Broker's  Contract 91 

21.  Broker's  Commission 91 

22.  Broker's  Organization  and  Operating  Method     .  92 


CHAPTER  VIII 
SELLING  TO  THE  RETAILER 

1.  Retailer's  Problems  Affect  the  Manufacturer  .       .  94 

2.  Channels  Thru  Which  Retailer  Is  Reached      .       .  94 

3.  Need  for  Warehouses  in  Direct  Selling      ...  94 

4.  Difficulties  in  Keeping  Complete  Stocks     ...  95 

5.  Expensive  to  Handle  Small  Orders       ....  96 

6.  Credit  Arrangements  Difficult 96 

7.  Why  the  Manufacturer  Sells  Direct    ....  97 

8.  Jobber  Unable  to  Give  Exclusive  Attention     .      .  97 


CONTENTS  xi 

SXCTION  ^    ^  PAGE 

9.  Jobber  Indifferent  to  Manufacturer's  Advertising     98 

10.  Manufacturer  Checks  Up  Advertising  ....      98 

11.  Jobbers  Cut  the  Price 100 

12.  Selling  Direct 100 

13.  Complete  Lines  Now  Handled  by  Manufacturers  .    100 

14.  Nature  of  Commodities  May  Demand  Direct  Sell- 

ing         


101 


15.  Dense  Population  Aids  Selling  Direct  ....  102 

CHAPTER  IX 
SELLING  THRU  EXCLUSIVE  AGENCIES 

1.  Choice  of  Means 103 

2.  Legal  Questions  Involved 103 

3.  Interests  of  the  Dealers  and  Manufacturers    .       .  104 

4.  Why  Retailers  Like  Exclusive  Agencies     .       .       .  105 

5.  Prices  Maintained 105 

6.  Benefits  of  Advertising  .       .       .       .       .                    .  105 

7.  Prestige 106 

8.  New  Trade 106 

9.  Close  Relations  With  Manufacturer     ....  106 

10.  Opposition  of  Dealers 107 

11.  Abuse  of  the  Exclusive  Agency  Idea    ....  107 

12.  Manufacturer's  Position 108 

13.  Are  Exclusive  Agencies  Taken  Away  .'*  .       .       .       .  108 

14.  Does   the   Exclusive  Agency   Discourage   Compe- 

tition.?           109 

15.  Why  Manufacturers  Favor  Exclusive  Agencies     .  110 

16.  Shopping  Lines Ill 

17.  Large  or  Expensive  Stock Ill 

18.  When  More  Sales  Attention  Is  Needed      .       .       .112 

19.  Installation,  Operation,  Service 112 

20.  Control  of  Price        . 113 

21.  Value  in  Introducing  Goods 113 

22.  Unadvertised  Goods 113 


xii  MARKETING  AND  MERCHANDISING 

SECTION  PAOB 

2S.  Dealers  Give  Active  Support 113 

24.  When  Manufacturers  Oppose  the  Idea       .       .       .  114 

25.  Desire  for  Greater  Sales 115 

26.  Do  Exclusive  Agents  Always  Push  Goods.?      .      .115 

27.  Extent  of  Exclusive  Agencies 115 

28.  Dealers  Versus  Manufacturers 116 


CHAPTER  X 

INFLUENCING  RETAIL  SALES 

1.  What  National  Advertising  Is  .       .       .       .       .       .118 

2.  Manufacturers'  Claims  for  National  Advertising   .  119 
S.  Claim  of  Quality 119 

4.  Value  in  Manufacturer's  Name 121 

5.  Increase  in  Sales       .,...:...  122 

6.  Decrease  in  Selling  Costs      . 122 

7.  More  Frequent  Turnovers 123 

8.  Manufacturers  Provide  Selling  Aids      ....  124 

9.  Opposition  to  National  Advertising      .       .      .       .  125 

10.  National  Advertising  Does  Not  Confer  Quality      .  125 

11.  Name  on  the  Goods 126 

12.  Influence  of  National  Advertising 127 

13.  Question  of  Profits 128 

14.  Advertising  Lines  Make  Dealers  Dependent    .       .  129 

15.  Channels  for  Unadvertised  Goods  Narrowing      .  130 


CHAPTER  XI 
SELLING  TO  THE  CONSUMER 

1.  Means  of  Direct  Selling 132 

2.  Specialty  Salesmen 132 

3.  Manufacturers'  Chain  Stores 135 

4.  Mail-Order  Selling 135 

6;     Direct-By-Mail    Selling 137 


CONTENTS  xiii 
CHAPTER  XII 
GOOD-WILL  AND  PRICE  MAIN;rENANCE 

SECTION  PAGE 

1.  Price   Maintenance   Defined 139 

2.  Price  Maintenance  an  Issue 139 

3.  Rise  and  Development 140 

4.  Advertising  Standardizes  Price 141 

5.  Price-Cutting  Advertises  Dealer  Who  Does  It      .  143 

6.  Price-Cutting  Demoralizes  Trade 143 

7.  Problem  for  National  Advertisers 144 

8.  Price  Cutters'  Defense 146 

9.  Price  Maintenance  Thru  Contracts      ....  146 

10.  Price  Maintenance  Thru  Contract  Illegal       .      .  147 

11.  General  Effect  on  Distribution 149 

12.  Ray  of  Hope  for  Price  Maintenance      ....  150 

13.  Issue  One  of  Trade-Mark  Protection    .       .      .      '.  152 

14.  Price  Maintenance  and  the  Public  Interest      .       .153 

15.  Waiting  for  Congress  or  the  Supreme  Court   .      .  157 

CHAPTER  XIII 

REACHING  THE  MARKET  AND  THE  COMPLETE 
CAMPAIGN 

1.  Absence  of  Standards  in  Selling 160 

2.  Correct  Judgment  Necessary  to  Marketing      .       .160 

3.  Shopping  Lines  and  Convenience  Goods  Defined      .  161 

4.  Shopping  Centers 162 

5.  Marketing  Shopping  Lines  and  Convenience  Goods  162 

6.  Determining  Price 164 

7.  Components  of  Price 164 

8.  What  Determines  Profit .165 

9.  Sales  Policy .  167 

10.  Credit 167 

11.  Quantity  Prices  and  Discounts 168 

12.  Free  Deals  and  Secret  Discounts 169 

13.  Guarantees 171 


xiv         MARKETING  AND  MERCHANDISING 

SECTION  PAGB 

14.  Service .17^ 

15.  Preparing  Budgets   Before   Marketing      .       .       .    173 

16.  Cooperation  with  Dealers 174 

17.  Sales  Records .175 


PART  II— MERCHANDISING 

CHAPTER  I 
THE  JOBBER 

1.  Scope  of  Treatment 179 

2.  What  Are  Jobbing  Lines.? .  180 

3.  What  Is  the  Jobber's  Pay.?       .       .       .       .       .       .180 

4.  Jobber  and  Retailer .       .  181 

5.  Difficulty  in  Keeping  Complete  Stocks      .       .       .182 

6.  Necessity  of  Seeing  Many  Salesmen      ....  182 

7.  Unbalanced  Stocks 183 

8.  Need  of  More  Capital 184 

9.  More  Storage  Space  Required 184 

10.  Credit  Arrangements  Would  Cease       ....  184 

11.  Elimination  of  the  Small  Dealer 185 

12.  When  the  Jobber  is  Necessary 185 

13.  Jobber's  Service  to  Consumer 186 

CHAPTER  II 
MODIFICATION  OF  THE  JOBBER'S  SERVICE 

1.  Manufacturing  Jobber  Defined 188 

2.  Advantages  of  Combining  Distributive  Functions  188 

3.  Economy  in  Methods  of  Production      ....  188 

4.  Economies  in  Stockkeeping 189 

5.  Long  Credits  on  Private  Brands 189 

6.  Methods  of  Organization      .       .       .  ♦    .       .       .       .  190 

7.  Semi-Jobber  Defined 191 

8.  Why  Semi-Jobbing  Has  Developed        ....  191 

9.  Methods  of  Organization 192 


/  CONTENTS  XV 

SECTION  ^  PAQB 

10.  Cooperative  Jobbing  Idea 193 

11.  Forms  of  Cooperation 194 

12.  Buying  Arrangements  of  Cooperative  Associations  195 

13.  Merchandise  Limited  to  Staple  Brands      .       .       .  195 

14.  Selling  Expenses  Low 196 

15.  Returning  and  Exchanging  Goods    .       .       .       .  196 

16.  System  of  Pricing 196 

17.  Short-Term  Credits 197 

18.  Deliveries 197 

CHAPTER  III 
PROBLEMS  OF  THE  JOBBER 

1.  Radius  of  Successful  Competition 199 

2.  Analysis  of  Business  Conditions 200 

3.  Conditions  in  the  Industry 201 

4.  Studying  the  Needs  of  the  Consumer      ....  202 

5.  Knowing  the  Retailer 203 

6.  Analyzing  Competition 204 

CHAPTER  IV 

RETAIL  COMPETITION 

1.  Magnitude  of  Retailing 206 

2.  Retailing  Before  the  Civil  War 206 

3.  Changed  Conditions  in  Retailing  After  the  Civil 

War 207 

4.  New  Basis  of  Competition 209 

5.  Necessity  of  Retail  Store     .......   210 

CHAPTER  V 

RETAIL  TYPES' 

1.  Rise  of  the  General  Store      .......  211 

2.  How  the  Country  General  Store  Holds  Trade      .  212 

3.  Why  the  Country  General  Store  Loses  Trade      .  213 

4.  Opportunity  of  the  Country  Store 213 

V  — 2 


XVI 


MARKETING  AND  MERCHANDISING 


SSCTIOK  ^  PAGK 

5.  Competitive  Strength  of  the  Specialty  Store  .214 

6.  Convenience 214? 

7.  Complete  Stocks 215 

8.  Personal  Service        .       .       .       .       .       .      .      .      .215 

9.  Rapid  Turnover 216 

10.  Low  Expenses  216 

11.  Points  of  Weakness  in  Specialty  Stores      .       .       .218 

12.  Limited  Opportunities  for  Trade     .       .       .       .       .    218 

13.  Limited  Opportunities  for  Advertising       .       .       .    219 

14.  Limited  Lines 220 

15.  Weakness  in  Buying 220 

16.  Poor  Management 221 

17.  Future  for  Specialty  Store 221 

18.  Rise  of  the  Department  Store 222 

19.  Two  Kinds  of  Department  Stores 223 

20.  Why  the  Department  Store  is  Popular      .       .       .    223 

21.  Elements  of  Department  Store  Strength    .       .       .    224 

22.  Economies    in   Combination       .      .       .       .       .       .    226 

23.  Possibilities  in  Handling  Low-Salaried  Help     .       .    226 

24.  Advertising  and  Service  Advantages      ....    226 

25.  Credit  on  a  Better  Basis 227 

26.  Better   Management 228 

27.  Manipulation  of  Departments 228 

28.  Financial  Advantages 229 

29.  Elements  of  Weakness  in  Department  Stores    .      .    229 

30.  Expensive  Delivery  Systems 231 

CHAPTER  VI 

CHAIN  STORES 

1.  Rise  of  the  Chain  Store 233 

2.  Kinds  of  Chains       .      .      .  234 

3.  Some  Better  Known  Chains 235 

4.  Tendencies  Shown  in  Chain-Store  Field      .      .      .    236 
6.  Elements  of  Strength  in  Chain  Stores       .      .      .   238 


CONTENTS  xvii 

SECTION  PAQB 

6.  strength  in  Financing 238 

7.  Advantages  in  Picking  Sites 239 

8.  Standardization  of  Stores 240 

9.  Standardization  of  Selling  Methods      ....  240 

10.  Buying  Advantages 241 

11.  Pricing .      .       .      .       .242 

12.  Use  of  Loss  Leaders 243 

13.  Low  Expense  of  Operation 243 

14.  Other  Advantages 244 

15.  Quick  Turnovers  and  Low  Profits 245 

16.  Strength  of  Service 246 

17.  Strength  in  Organization 247 

18.  Advantages   in   Advertising  ■ 248 

19.  Advantages  of  Accounting  Methods      ....  249 

20.  Weaknesses  of  Chain  Stores 250 

21.  Meeting  Chain-Store  Competition 251 

22.  What  the  Chain  May  Teach 252 

23.  Chain  Stores  and  the  Manufacturer      ....  253 


CHAPTER  VII 

MAIL-ORDER  SELLING 

1.  Significance  of  Mail-Order  Development      .      .       .  255 

2.  Extent  of  Mail  SeUing 257 

3.  Retailer's  Attitude  Toward  Mail-Order  Selling      .  258 

4.  Jobber's  Attitude .       .  259 

5.  Manufacturer's  Attitude 259 

6.  Attitude  of  the  Public     ........  260 

7.  Kinds  of  Mail  Selling 260 

8.  Why  Goods  Are  Sold  by  Mail 261 

9.  Is  Mail-Order  Selling  "Legitimate".?      .       .       .      .262 

10.  Justification  of  Selling  by  Mail 264 

11.  Creating  Business  by  Mail-Order 265 

12.  Competitive  Strength  of  Mail-Order  Selling      .      .  266 

13.  Wide  Variety  of  Selection 266 


xviii       MARKETING  AND  MERCHANDISING 

SECTION  PAGE 

14.  Low  Capital  and  Overhead   . 26T 

15.  National  in  Scope 268 

16.  Selling  Power  of  the  Catalog 268 

17.  Low  Prices 269 

18.  Elements  in  Selling  Price 269 

19.  Influence  of  Quantity  upon  Price 271 

20.  Trade  Favors 271 

21.  "Loss  Leaders" 272 

22.  Advantages  of  Mail-Order  Houses  Not  Inherent  273 

23.  Retaiiler  and  Mail-Order  Competition    ....  273 

24.  Purchaser  Picks  Out  His  Own  Goods     ....  274 

25.  Quick  Delivery 274 

26.  Merchants'  Good-Will .275 

27.  Personal  Service 275 

28.  Appealing  to  Community  Pride 275 

29.  Competing  in  Price  and  Service 276 

30.  Competing  by  Mail 276 

31.  One  reason  for  Failure  to  Compete      ....  277 


CHAPTER  VIII 
TRAINING  THE  SALES  FORCE 

1.  "The  Salesman  is  the  Store" 279 

2.  Explaining  the  Store  Policy      ......  280 

3.  Teaching  the  Store  System 281 

4.  Beginning  Actual  Selling 282 

5.  Special  and  General  Bulletins 283 

6.  Studying  Merchandise    . 283 

7.  Libraries  and  Rest  Rooms 284 

8.  Junior  Courses 284 

9.  Cooperating  with  Public  Schools 285 

10.  Training  Non-Selling  Employes 285 

11.  Results  of  Educational  Work 286 


CONTENTS  xix 

CHAPTER  IX 
BUYING 

SECTION  PAOK 

1.  Necessity  of  Good  Buying 287 

2.  Buying  Organization 287 

3.  Guides  to  Buying .    288 

4.  Lines   to   be   Carried 289 

5.  Estimating  Possible  Business 290 

6.  Buying  According  to  Budget 292 

7.  Figuring  the  Turnover 292 

8.  Proper  Use  of  Turnover 294? 

9.  Determining  Gross  Profit 296 

10.  Price  Confirms  Quality .297 

11.  Attitude  Toward  Discounts 297 

12.  Accrediting  the  Discounts 298 

13.  Pricing  Goods 299 

14.  Profits 300 

15.  Buying  by  Monthly  Quota 300 

16.  Keeping  in  Touch  with  the  Market      ....    301 

17.  Selecting  the  Wholesaler 302 

18.  Concentration  of  Purchases        .      .      .      .      .       .    302 

19.  Buyer's  Attitude  Toward  Salesmen      ....    303 

20.  Selecting  Merchandise  for  Qualit}'      ....    $04 

21.  Style  Novelty  and  Exclusiveness 304 

22.  Stocking  New  Lines 305 

23.  Buyer  Must  Act  as  Merchant    ......   305 


CHAPTER  X 

STOCKKEEPING 

1.  Necessity  for  Good  Stockkeeping 307 

2.  Depreciation  and  Its  Causes 307 

3.  Receiving  the   Goods 308 

4.  Invoicing  the  Goods 309 


XX  l^IARKETING  AND  MERCHANDISING 

SECTION  PAGE 

5.  Marking   the   Goods 310 

6.  Appraising  the  Goods 310 

7.  Keeping  Reserve  Stocks  Low 311 

8.  Arrangement  of  Reserve  Stocks 313 

9.  Active  or  "Forward"  Stock 314 

10.  Importance  of  Keeping  Track  of  Stock      .       .       .314 

11.  Methods  of  Preparing  for  Inventory   ....  317 

12.  Preliminary  Work 317 

13.  Inspecting  Stock       .      .      .      .      .      .      .      .       .  318 

14.  Changes  After  First  Count 318 

15.  Taking  Stock  While  Business  Goes  On      .      .      .  319 

16.  Arrangement  of  Inventory  Books 319 

17.  Subdividing  the  Inventory 319 

CHAPTER  XI 
COOPERATION  FOR  SERVICE 

1.  Problems  of  Changing  Conditions    .....  321 

2.  Working  Toward  a   Conclusion 321 

3.  Increasing  Organization 322 

4.  Phases  of  Cooperation 323 

5.  Combine  of  Department  Stores 325 

6.  Effects  of  Retail  Cooperation 327 

7.  End  is  Service     ..........  328 


PART  I 
MARKETING 


MARKETING 

CHAPTER  I 

MODERN  DISTRIBUTION 

1.  Producer  and  consumer, — In  our  modern  eco- 
nomic life  producer  and  consumer  generally  do  not 
come  directly  in  contact.  There  is  a  gap  between 
them  usually  bridged  by  one  or  more  middlemen 
whose  function  it  is  to  gather  up  the  products  of  field, 
mine  and  factory  and  bring  them  to  the  user  in  the 
forms  desired.  These  middlemen  constitute  the  mar- 
ket to  which  the  producer  sells  and  from  which  the 
consumer  buys.  A  study  of  market  distribution  is 
mainly,  therefore,  a  study  of  middlemen  and  their 
services. 

So  accustomed  have  we  become  to  this  form  of 
business  organization,  that  it  is  difficult  for  us  to 
conceive  conditions  where,  as  in  primitive  times,  each 
man  or  group  of  men  in  a  family  or  a  clan,  themselves 
directly  produced  all  which  they  consumed.  But  if 
we  recall  the  frontier  life  in  early  American  history, 
or  the  later  life  on  Northern  farms  and  Southern 
plantations,  where  most  or  much  of  the  food,  cloth- 
ing and  shelter  was  "raised"  or  otherwise  provided 
by  the  farmers  and  frontiersmen  themselves,  and  little 


4  MARKETING 

at  first  obtained  by  an  exchange  of  goods  with  other 
farmers  or  the  outside  world,  we  can  visualize  the  time 
when  there  was  no  exchange  of  goods  whatever.  The 
wants  of  men  must  have  been  very  simple  then.  Thus 
when  exchanges  began  to  take  place,  they  were,  of 
course,  made  directly  between  the  producer  and  the 
consumer.  One  had  to  hunt  up  the  other.  When  in 
the  course  of  time  this  procedure  became  onerous  and 
expensive,  relief  arrived  in  the  person  of  a  go-between 
or  middleman. 

It  is  apparent,  consequently,  that  the  three  success- 
sive  steps  in  economical  development  have  been  pro- 
ducing for  one's  own  needs ;  producing  for  direct  ex- 
change with  one's  neighbors;  and  producing  for  the 
general  market.  Neither  of  the  earlier  steps  has  al- 
together disappeared.  Hundreds  of  thousands  of 
city  dwellers,  for  example,  reverted  to  the  first  when 
they  raised  their  own  vegetables  in  "war  gardens." 
Direct  exchange  prevails  and  must  prevail  indefinitely 
in  many  lines  where  the  relation  is  necessarily  intimate 
— telephone  and  telegraph,  merchant  tailoring,  con- 
struction, domestic  service,  professional  services  and 
the  like.  But  the  great  bulk  of  modern  production  is 
for  the  general  market. 

2.  What  determines  the  distributing  machinery, — 
The  means  and  methods  by  which  goods  pass  from 
producer  to  consumer  are  sometimes  simple,  some- 
times extremely  complex.  There  is  and  can  be  no 
manner  of  distribution  common  to  all  products,  and 
the  number  and  importance  of  the  several  links  in 


MODERN  DISTRIBUTION  5 

the  chain,  as  well  as  the  relation  between  them,  vary 
according  to  circumstances.  Custom  and  tradition 
count  for  less  than  they  did  in  the  past.  Modern 
business  seeks  to  apply  practical  tests.  It  makes 
changes  whenever  it  believes  advantage  will  result. 

The  form  of  distribution  which  any  given  line  has 
taken  or  may  take  depends  largely  upon  the  relative 
economic  strength  of  the  different  elements  in  it. 
Large  and  powerful  manufacturers,  for  example, 
dominate  some  lines  and  modify  the  methods  of  dis- 
tribution there.  In  other  lines,  the  producers,  who 
may  be  farmers,  are  powerless  because  individual  and 
unorganized.  In  many  fields,  the  jobber  was  once 
all-powerful.  Individual  consumers  are  nominally 
and  at  this  time  the  weakest  link  in  the  chain,  tho  in 
their  political  capacity  or  thru  their  political  and  ju- 
dicial representatives,  they  nevertheless  exert  a  po- 
tent influence  on  the  methods  of  distribution.  Wit- 
ness the  recent  control  of  business  in  the  interest  of 
the  war.  Consumer  cooperation  in  buying  has  had 
a  definite  beginning  in  America,  but  there  is  nothing 
to  indicate  that  it  will  duplicate  in  the  near  future  the 
remarkable  gi'owth  of  the  great  European  wholesale 
cooperatives. 

It  is  this  tangled  web  of  relations  that  the  present 
volume  is  designed  to  study  and  elucidate.  In  the 
first  part,  "Marketing,"  it  is  concerned  with  the  prob- 
lems of  the  producer;  in  its  second  part,  "Merchan- 
dising," with  those  of  the  dealer. 

3.  Increased  specialization  in  industry, — The  evo- 


6      .  MARKETING 

lution  from  the  period  of  general  production  without 
exchange  has  left  few  people  today  engaged  either 
directly  or  indirectly  in  the  production  of  more  than 
one  article  or  one  line  of  allied  articles.  As  before 
said,  this  would  not  have  been  possible  without  mid- 
dlemen. The  middlemen  specialized  in  exchange  in- 
stead of  production  and  made  it  possible  for  others 
to  devote  themselves  exclusively  and  hence  more  ef- 
ficiently and  economically  to  production.  The  same 
specialization  in  exchange  must  unquestionably  have 
been  the  occasion  of  a  greater  variety  in  goods.  Un- 
der the  old  arrangement  of  direct  exchange,  a  lot  of 
time  and  energj^  would  be  used  up  in  persuading  peo- 
ple to  take  something  new  and  pay  a  proper  price  for 
it.  So  novelty  and  invention  were  at  a  heavy  dis- 
count. The  institution  of  middlemen  changed  all 
that.  Producers  could  experiment  a  little.  There 
was  a  greater  chance  for  progress.  The  middleman's 
market  is  a  vast  clearing-house  of  useful  things  at 
all  ranges  of  price  and  quality.  It  is  one  of  the  most 
magnificent  labor-saving  short-cuts  imaginable.  In 
this  way  the  middleman  has  become  a  market 
specialist.  Generally  the  manufacturer  is  not.  He 
is  most  frequently  expert  in  manufacturing  alone  and 
seldom  has  either  the  training  or  the  means  to  make 
a  market  for  his  goods  by  himself.  He  needs  and  is 
glad  to  use  the  services  of  a  marketing  expert. 

The  competition  and  specialization  of  individuals 
is  not  the  sole  or  chief  cause  of  the  rise  of  the  middle- 
man.    It  is  the  nature  of  industry  to  develop  in  groups 


MODERN  DISTRIBUTION  7 

or  communities,  and  these  communities  are  many  and 
far  apart  from  each  other.  Pittsburgh  speciahzes  in 
iron  and  steel  products,  Danbury  in  hats ;  Troy  makes 
collars  and  shirts,  Gloversville  gloves,  Glens  Falls 
paper  bags  and  boxes ;  the  Dakotas  grow  wheat,  Cali- 
fornia and  Florida  fruit,  the  South  cotton,  Idaho  and 
Washing-ton  apples;  and  the  list  might  be  continued 
indefinitely.  It  would  be  too  expensive  if  not  physi- 
cally impossible  for  one  community  to  exchange  its 
specialized  product  directly  for  the  specialized  pro- 
ducts of  thousands  of  other  communities.  No  com- 
munity has  ever  attempted  it.  Some  general  ar- 
rangement has  been  necessary  to  "clear"  the  products 
of  all  communities. 

4.  Large-scale  production, — The  indirect  exchange 
of  manufactured  products  has  also  been  enormously 
stimulated  by  the  quantity  or  large  scale  production 
made  possible  by  the  perfection  of  power  machinery. 
A  well-known  soap  manufacturer,  when  he  began 
business  years  ago,  purchased  his  raw  material  at  the 
backdoors  of  the  town  in  which  he  lived,  and  later  de- 
livered the  finished  product  from  a  wheelbarrow  to 
individual  buyers.  But  when  he  moved  into  a  factory 
and  increased  his  output  a  thousand  and  later  a  million 
fold,  he  could  no  longer  afford  the  time  to  sell  his 
product  in  the  old  way;  the  employment  of  helpers 
to  make  individual  five-cent  sales  of  soap  would  have 
bankrupted  him ;  he  was  forced  to  use  the  established 
middlemen,  the  jobbers  and  retail  stores. 

5.  Economic  basis  of  modern  marketing. — Market- 


8  MARKETING 

ing  methods  grow  out  of  and  are  founded  in  the  indus- 
trial needs  of  the  times.  The  middleman  is  a  factor  in 
marketing  not  because  he  has  consciously  made  a  place 
for  himself,  nor  because  consumers  have  carelessly 
permitted  him  to  step  in  between  themselves  and  the 
manufacturers  of  the  things  they  buy  and  exact  an 
unjustified  tribute,  but  because  of  the  necessities,  on 
the  one  hand,  of  specialized  and  large-scale  industry, 
and  on  tlie  other  hand,  of  consumers  equally  special- 
ized in  tlieir  demands  for  goods  as  well  as  for  types 
of  service  which  the  distant  manufacturer  cannot  of 
himself  render.  If  middlemen  as  a  class  are  to  be 
abolished,  it  can  be  done  only  by  abolishing  the  con- 
ditions that  brought  them  into  existence  or  transfer- 
ring their  functions  to  either  the  producers  or  the 
consumers. 

6.  Selling  problems  versus  manufacturing  prob- 
lems.— In  the  early  periods  of  industrial  history,  sell- 
ing problems  gave  mankind  little  concern.  In  the 
period  of  no  exchange  they  did  not,  of  course,  exist 
and  in  the  period  of  direct  exchange  they  were  rela- 
tively simple.  The  problem  of  getting  goods  from 
the  factory  to  consumers  is  one  that  could  only  arise 
in  consequence  of  indirect  exchange  and  could  hardly 
become  acute  until  the  producers'  supply  had  out- 
stripped the  consumers'  demand,  and  there  was  un- 
usual competition  among  the  former  class  for  the 
favor  of  the  latter. 

A  generation  or  two  ago,  the  most  pressing  busi- 
ness problems  concerned  manufacture.     It  was  diffi- 


MODERN  DISTRIBUTION  9 

cult  to  get  goods  enough  to  satisfy  the  demand  for 
them.  One  result  of  this  was  to  center  attention  on 
production  processes.  For  several  decades  now  they 
have  been  the  subject  of  intensive  study.  Science  and 
standardization  have  effected  revolutionary  changes 
and  established  a  large  measure  of  control  over  both 
the  machine  factor  and  the  human  factor. 

In  marketing  there  is  no  machine  factor.  There 
is  only  the  human  element,  and  while  executive  con- 
trol of  one  sort  or  another  is  being  gradually  extended 
over  it,  the  progress  is  still  relatively  slight.  Some 
idea  of  the  situation  may  be  had  from  the  reputed 
fact  that  95  per  cent  of  all  business  problems  are  sell- 
ing problems.  The  larger  part  of  the  difficulty  may 
be  due  to  the  inordinate  production,  but  a  still  larger 
part  is  unquestionably  traceable  to  the  wastes  of  the 
distributive  ways  and  means. 

7.  Who  is  a  middleman? — Too  often  the  term  mid- 
dleman is  applied  exclusively  to  one  class  of  dealers, 
whereas,  when  used  without  qualification,  it  should 
include  everyone  who  stands  between  the  prime  pro- 
ducer and  the  ultimate  consumer  and  takes  a  profit 
for  the  risk  he  runs  in  addition  to  being  compensated 
for  the  cost  of  his  services. 

Suppose,  for  example,  that  manufacturer  A  em- 
ploys salesman  B  to  sell  goods  to  consumer  C.  B  is 
paid  for  the  cost  of  his  services;  he  is  not  a  middle- 
man, because  there  is  no  element  of  risk  and  no  profit 
in  the  compensation  he  receives;  he  is  an  employe  and 
not  an  independent  business  man.     Suppose,  how- 


10  MARKETING 

ever,  that  A  employs  no  salesmen,  but  utilizes  the 
services  of  D,  a  retail  dealer,  who  agrees  to  carry  and 
sell  A's  goods  to  C  when  and  as  wanted.  The  actual 
time  or  service  that  D  puts  in  must  be  covered  in  some 
way,  and  in  addition  he  must  also  receive  enough  in 
the  form  of  profit  to  compensate  him  for  the  risk  he 
runs  in  investing  his  capital  in  the  business  of  dis- 
tributing A's  goods.  These  elements  of  risk  and 
profit-taking  make  D  a  middleman.  The  total  pay- 
ment to  him  for  service  and  as  profit,  (and  whether 
A  pays  one  or  C  both  in  the  form  of  price  is  imma- 
terial) may  be  less  than  the  earnings  of  the  regularly 
employed  salesman,  he  is  none  the  less  a  middleman 
if  he  has  assumed  the  risk  and  taken  a  profit. 

8.  Greatest  of  the  middlevien, — Most  people,  when 
they  speak  of  the  middleman,  appear  to  have  in  mind 
the  jobber  or  wholesaler.  The  jobber,  however,  is  in 
a  \eT\  small  class.  Still  less  important,  from  the 
standpoint  of  the  number  and  volume  of  business  they 
transact,  are  the  brokers,  commission  men  and  other 
intermediaries  of  the  same  general  type.  The  great- 
est class  of  middlemen  are  the  retailers.  They  not 
only  outnumber  all  other  middlemen  twenty  times 
over,  but  the  total  volume  of  their  sales  exceeds  that 
of  all  other  kinds  of  middlemen  combined  by  as  much, 
of  course,  as  the  extent  of  the  retail  "mark-up."  It 
is  the  retailer  who  is  the  outstanding  factor  in  our  dis- 
tributing system;  his  service,  his  function,  his  needs 
must  receive  the  major  attention  in  any  discussion 
of  the  scope  and  value  of  the  middleman's  service. 


MODERN  DISTRIBUTION  11 

9.  Middlemen  and  the  manufacturer. — Middle- 
men, as  a  class,  provide  and  actually  are  the  market 
organization  for  the  adjustment  of  supply  to  demand. 
They  furnish  a  clearing-house  not  only  for  the  items 
of  production  and  consumption,  but  also  for  the  facts 
as  to  their  supply  and  demand.  Thru  their  agency, 
the  producer  is  enabled  to  gauge  probable  demand. 
The  manufacturer  in  Detroit,  for  instance,  learns  of 
the  needs,  desires  and  demands  of  people  in  Los 
Angeles  and  Boston,  or  even  Pekin  and  Melbourne, 
by  means  of  the  chain  of  middlemen  reaching  out  from 
him  to  them.  In  the  market  for  manufactured  goods 
there  are  many  consumers  for  each  producer,  and  it  is 
organized  in  such  a  way  as  to  provide  for  the  breaking 
up  of  the  manufacturer's  output  into  many  small 
units  for  the  use  of  a  large  number  of  individual 
buyers.  The  large  majority  of  manufacturers  can- 
not possibly  feel  the  pulse  of  the  final  market  at  first 
hand,  because  of  its  size  and  extent.  Middlemen  do 
this  for  them.  They  also  allow  a  credit  accommoda- 
tion— the  jobber  to  the  retailer  or  the  latter  to  the 
ultimate  consumer — that  the  manufacturer  could 
seldom  or  never  afford  and  thus  enlarge  and  facilitate 
his  business. 

10.  Middlemen  and  the  consumer, — The  middle- 
man is  of  equal  aid  to  the  consumer.  He  brings  to- 
gether, in  the  retail  store,  most  of  the  things  that  you 
need;  keeps  them  for  you  until  you  want  them;  an- 
ticipates other  wants;  educates  you  with  reference 
to  new  goods ;  obtains  for  you  what  he  does  not  keep 

V  — 3 


12  MARKETING 

in  stock;  in  other  words,  does  for  you  what  you  could 
not  possibly  do  for  yourself  in  a  life  time.  Neither 
would  it  be  possible  for  the  retailer  by  himself  to  do 
it  for  you.  The  vast  development  of  service  is  made 
possible  by  organization. 

11.  Aid  in  stabilizing  prices, — Finally,  as  a  result 
of  his  work  in  posting  the  producer  on  demand  and 
the  consumer  on  supply,  and  thus  bringing  demand 
and  supply  more  closely  together,  the  middleman  is 
influential  in  helping  to  establish  more  or  less  uni- 
form and  stable  prices  over  large  areas.  A  definite 
world  value  for  wheat,  for  instance,  is  chiefly  due,  in 
time  of  peace,  to  the  organization  of  the  wheat  market. 
The  same  thing  is  true  in  greater  or  less  degree  of 
many  different  articles.  The  advantage  which  the 
public  derives  from  the  general  uniformity  and  stabil- 
ity of  prices  is  the  advantage  that  standardization  of 
any  kind  may  be  expected  to  give,  namely,  protection 
against  loss  thru  fluctuations  in  price,  freedom  from 
personal  care  in  guarding  against  such  losses,  and, 
finally,  ability  to  plan  more  intelligently  with  regard 
to  supply. 

12.  Middleman  as  a  producer, — In  the  foregoing 
discussion,  the  term  "producer"  has  been  used  as  the 
common  and  convenient  designation  for  the  agency 
by  which  goods  first  come  on  the  market,  that  is  to  say, 
the  farmer,  miner,  or  more  generally  the  manufac- 
turer. It  was  formerly  thought,  as  you  have  already 
read  in  the  Text,  that  these  producers  are  the  only 
ones  who  "created"  useful  things,  or  what  is  more  ac- 


MODERN  DISTRIBUTION  13 

curate,  put  the  utility  into  them.  The  mere  handler 
of  goods,  the  transporter,  the  warehouseman,  the 
dealer,  was  generally  pictured  as  one  who  had  thrust 
himself  into  the  situation  and  levied  tribute  on  the 
needs  of  the  consumer  and  the  only  true  producer. 
For  centuries  he  has  been  criticised  and  curbed  in 
w^hat  are  now  accepted  as  some  of  his  most  valuable 
functions.  At  every  period  in  which  prices  rise  and 
the  cost  of  living  is  changed,  popular  criticism  seeks 
a  target  in  the  middleman.  For  the  past  ten  or 
twelve  years  it  has  been  so  in  this  country.  Hence 
it  is  well  to  inquire  how  far  this  is  justified  and,  if 
the  service  of  the  middleman  does  not  add  utility  or 
value  to  the  goods  he  handles,  just  what  does  it  add. 
In  his  "Elements  of  Economics,"  Professor  Richard 
T.  Ely  says: 

It  has  seemed  to  some,  even  among  economists  of  an 
earlier  time,  that  the  farmer  is  more  truly  a  producer  than 
the  manufacturer,  and  the  manufacturer  than  the  merchant ; 
but  careful  thought  discloses  the  fallacy  of  such  a  view. 
All  industrial  classes  alike  produce  one  or  more  of  the  four 
sorts  of  utility,  and  they  do  so  by  changing  the  relations 
of  things  in  time  or  space.  The  farmer  changes  the  po- 
sition of  grains  of  corn  by  dropping  them  into  the  earth. 
Then  he  removes"  the  weeds  and  throws  earth  about  the 
rising  stalks.  Thus  man's  arts  in  changing  the  relations 
and  positions  of  things,  aided  by  Nature's  materials  and 
forces,  result  in  more  corn  for  human  consumption.  The 
manufacturer  in  the  same  way  changes  the  position  of  pieces 
of  matter,  and,  aided  bj  natural  forces  within  and  without 
the  object  of  production,  he  causes  the  matter  to  assume  a 
form  that  fits  it,  or  better  fits  it,  for  human  needs.  So,  too, 
the  merchant  changes  the  places  of  things  from  where  thej 


14i  MARKETING 

are  less  useful  to  where  they  are  more  useful,  or  holds  them 
in  one  place  until  a  change  of  external  circumstances  gives 
them  greater  utility.  He  is  producing  utilities  as  truly  as 
is  the  farmer  or  the  manufacturer. 

13.  Four  kinds  of  utilities,— To  say  that  the  mid- 
dleman's main  function  is  to  provide  a  clearing-house 
for  goods  is,  therefore,  only  another  way  of  saying 
that  his  main  function  is  to  create  utilities.  We  shall 
do  well  to  be  more  precise  on  this  point.  A  utility, 
as  we  were  reminded  in  the  Text  on  "Economics,"  is 
anything  that  satisfies  a  want.  Of  the  four  kinds  of 
utilities  described,  the  first,  the  inherent  or  natural 
quality  for  which  something  is  desired,  for  instance, 
the  life-sustaining  elements  of  wheat,  is  called  ele- 
mentary utility.  When  the  wheat  is  ground  into 
flour  in  order  to  make  it  more  edible,  it  is  said  to  have 
been  given  new  form  utility.  Again,  the  fact  that 
flour,  possessing  both  elementary  and  form  utility,  if 
in  a  miller's  warehouse  in  iSIinneapolis,  is  of  little  in- 
terest to  a  baker  in  New  Orleans.  If  the  flour  is  to 
have  real  utility  for  him,  it  must  be  brought  to  Xew 
Orleans;  in  other  words,  place  utility  must  be  added 
to  it.  Even  with  the  addition  of  this  further  useful- 
ness, however,  the  citizen  of  New  Orleans  may  not  be 
able  to  utilize  it.  If  it  is  brought  to  his  city  in  May 
and  he  does  not  need  it  till  July  and  will  not  take  it 
until  then,  it  must  either  be  sent  back  or  else  be  stored 
by  someone  so  as  to  be  available  to  satisfy  July  needs. 
Thus  the  flour,  even  tho  possessing,  elementary ,  form 
and  place  utility,  cannot  be  used  unless  it  also  pos- 


MODERN  DISTRIBUTION  15 

sesses  time  utility — the  quality  of  being  available  for 
use  when  needed. 

With  elementary  and  form  utility  the  market  or- 
ganization has,  as  suggested,  nothing  to  do.  Goods 
possess  those  characteristics  before  they  reach  it. 
But  place  and  time  utility  are  added  by  the  middlemen 
when  they  perform  the  important  services  of  moving 
things  from  the  place  where  they  are  produced  and 
not  wanted  to  the  place  where  they  are  or  will  be 
wanted  and  holding  them  against  that  demand. 
These  services  are  vital  to  trade.  Somebody  must 
perform  them. 

14.  Some  middlemen  must  go. — It  does  not  follow, 
however,  that  the  services  shall  always  be  performed 
by  middlemen.  In  many  industries,  it  is  becoming 
convenient  to  do  without  middlemen  entirely  and  sell 
thru  branches,  agencies,  chain-stores  and  mail  orders 
to  the  public  direct.  In  other  industries  a  smaller 
number  of  middlemen  are  being  used,  for  example  in 
•  the  textile  lines,  w^here  a  long  and  once  formidable 
chain  of  middlemen  is  being  shortened  for  the  good 
of  the  business  and  the  public  as  well.  In  all  lines 
where  middlemen  flourish,  abuses  are  being  weeded 
out,  wastes  eliminated  or  arbitrary  powers  curbed. 
At  the  same  time,  the  conclusion  which  some  observers 
draw  that  the  middleman  is  doomed  to  extinction  is 
somew^iat  hasty.  To  admit  that  some  types  of  mid- 
dlemen are  economically  unjustified  and  should  be 
abolished  is  very  far  from  admitting  that  all  middle- 
men, even  all  jobbers,  are  bad  and  should  go.     Some 


16  MARKETING 

middlemen  in  all  fields  must  go  and  doubtless  most  or 
all  in  some  other  fields  must  do  the  same,  but  many  of 
these  changes  will  be  due,  as  many  of  those  already 
accomplished  are  due,  to  the  slowness  of  middlemen 
in  adapting  their  organization  and  service  to  new  re- 
quirements. When  the  adjustment  is  made,  and  it  is 
even  now  taking  place,  manufacturers  and  consumers 
may  both  be  expected  to  abdicate  the  jobbing  and 
retailing  functions  in  some  degree  and  return  to  their 
own  specialties. 

15.  Middlemen  and  competition, — The  only  influ- 
ence that  could  seriously  threaten  middlemen  as  a  class 
would  be  a  change  from  the  competitive  to  a  monopo- 
listic system  of  industry.  Such  a  system,  whether 
privately  or  publicly  operated,  would  doubtless  con- 
sist of  one  concern  or  group  of  allied  concerns  engaged 
in  manufacturing  a  given  commodity  or  line  of  com- 
modities, and  would  have  its  own  distributing  or- 
ganization. Developments  toward  monopoly  had 
gone  to  great  lengths  in  Germany.  In  our  own  * 
countr}%  the  same  tendency,  always  latent  in  com- 
petition, has  been  drastically  checked  by  the  Sherman 
Law  and  various  judicial  decisions.  It  is  noteworthy 
that  power  production  first  creates  a  need  for  mid- 
dlemen to  distribute  the  increasing  output  and  then 
urges  on  individual  manufacturers  to  open  up  direct 
channels  to  the  public  for  the  more  rapid  movement  of 
the  goods  than  middlemen,  as  general  distributors  for 
many  manufacturers,  are  willing  or  able  to  effect. 


MODERN  DISTRIBUTION  17 

But  it  is  certain  that  under  prevailing  conditions  no 
one  interest  or  set  of  interests  will  be  permitted  to 
control  an  industry.  Groups  of  small  manufacturers 
may  operate  a  distributing  system  cooperatively,  as 
has  been  done,  but  it  will  be  broken  up  as  soon  as 
it  approaches  the  monopolistic  stage.  There  is  no 
legal  or  moral  bar  to  the  cooperation  of  consumers  on 
any  scale,  but  the  movement  is  too  new  in  America 
to  promise  much  danger  to  the  established  markets. 
As  to  government  monopoly,  that  seems  to  be  the  most 
remote  possibilit}^  of  all. 

Under  the  present  competitive  system,  the  field  is 
free  to  any  one  who  wishes  to  start  in  business,  who 
discovers  a  place  where  the  creation  of  some  kind  of 
utility  will  mean  comfort  and  convenience  for  the 
public,  for  which  the  public  will  be  w^illing  to  pay. 
As  long  as  w^e  continue  to  operate  on  the  present  basis 
of  '*a  fair  field  and  no  favors,"  we  shall  continue  to 
have  middlemen.  No  producer  of  time  and  place 
utility  who  performs  a  needed  service,  who  does  his 
work  efficiently  and  who  takes  only  an  honest  profit 
need  apologize  for  his  existence  or  fear  that  he  is  out 
of  tune  with  the  economic  trend  of  the  times. 

REVIEW 

What  is  your  opinion  of  the  popular  contention  that  the  only 
economically  justified  method  of  marketing  is  direct  from  manu- 
facturer to  consumer? 

In  your  business  is  it  true  that  the  problems  of  marketing 
are  more  difficult  of  solution  than  the  problems  of  manufactur- 
ing?    Why? 


18  MARKETING 

How  do  you,  personally,  profit  by  the  existence  of  middle- 


men: 


If  some  one  should  contend  that  the  middleman  is  not  a  pro- 
ducer, how  would  you  prove  him  to  be  wrong? 

What  is  the  connection,  if  any,  between  the  continued  exist- 
ence of  middlemen  and  the  competitive  system  of  industry? 


CHAPTER  II 

THE  FIELD  OF  MARKETING 

1.  Growing  importance  of  distribution. — Until 
very  recently  the  leading  place  in  industry  was  oc- 
cupied, as  said,  by  production.  The  problem  of  the 
past  has  been  to  produce  staple  goods  to  meet  the 
demands  of  a  fast-growing  population  and  a  market 
which  was  constantly  being  widened  thru  improved 
methods  of  transportation.  To  meet  these  urgent 
demands  the  best  brains  in  the  industrial  world  were 
kept  at  work  devising  original  methods,  new  machines 
and  improved  processes  which  would  make  possible 
an  increased  production  at  lower  cost. 

Conditions  which  obtain  in  the  business  world  today 
lay  stress  upon  the  side  of  distribution.  The  pro- 
ducer must  go  to  his  market  where  formerly  the 
market  came  to  him.  It  is  necessary,  therefore,  that 
the  producer  give  to  marketing  the  same  thought  and 
attention  that  has  brought  production  to  its  present 
high  state  of  efficiency. 

2.  What  is  marketing? — To  the  producer,  market- 
ing is  the  manner  in  which  the  product  is  disposed  of, 
the  way  in  which  it  is  distributed  for  him,  often  with 
his  cooperation,  thru  the  various  channels  of  trade. 
On  the  other  hand,  merchandising,  which  parallels 

19 


«0  MARKETING 

marketing  at  many  points  and  is  frequently  confused 
with  it,  is  the  process  seen  from  the  jobber's  and  the 
retailer's  standpoints  and  includes  not  only  the  dis- 
tribution of  the  goods  but  their  acquisition  as  well. 
IManufacturers  market  their  products,  jobbers  and 
retailers  merchandise  their  stocks  of  these  products. 
Thruout  the  Text  this  distinction  will  be  made. 

Marketing  assumes  different  aspects  to  different 
kinds  of  producers.  For  the  grain  farmer  the  prob- 
lem is  comparatively  easy.  After  he  has  harvested 
his  crop  he  has  only  to  make  arrangements  with  a  com- 
mission house  to  purchase  it  and  thus  his  marketing 
problem  is  solved.  For  the  miner  and  the  fisherman 
marketing  is  equally  free  from  complexities.  But 
for  the  manufacturer,  the  process  is  far  different. 
He  must  determine  whether  he  shall  make  use  of  the 
services  of  the  jobber  and  retailer  in  marketing  his 
product,  or  whether  he  shall  sell  direct  to  the  con- 
sumer. He  must  also  consider  the  methods  to  be 
used  in  reaching  markets.  Furthermore,  he  must 
fix  upon  the  kind  of  market  he  wishes  to  reach  and 
consider  its  various  limitations.  These  are  only  a  few 
of  the  questions  which  must  be  decided  by  him  before 
his  marketing  campaign  is  fully  worked  out. 

3.  Agencies  used  to  reach  markets. — In  disposing 
of  his  product,  the  producer  must  first  determine  the 
means  which  he  believes  will  exert  the  most  effective 
selling  force.  Two  are  available — personal  sales- 
manship and  advertising.  The  former  is  direct  and 
restricted  in  scope,  the  latter  indirect  and  broad. 


FIELD  OF  MARKETING  gj 

Personal  salemanship  is  an  attempt  to  sell  the  pro- 
duct to  individuals  by  direct  solicitation,  while  adver- 
tising makes  the  same  attempt  thru  the  printed  word 
and  reaches  the  mass  as  well.  Either  of  these  agen- 
cies or  both  in  combination  may  be  used  by  the  pro- 
ducer in  marketing  his  product. 

If  the  producer  turns  out  an  article  which  is  sold 
largely  in  bulk,  say  a  staple  food,  or  goods  of  variable 
price  and  quality  and  sold  by  sample,  he  will  be  likely 
to  use  personal  salesmanship  in  selling  it.  If,  how- 
ever, he  is  putting  on  the  market  a  branded  commodity 
or  one  which  may  be  sold  from  description,  it  may 
be  possible  for  advertising  to  take  the  place  of  per- 
sonal salesmanship  so  far  as  calling  on  consumers  and 
retail  dealers  is  concerned.  In  ^ost  instances,  new 
articles  are  introduced,  and  sustained  by  a  combina- 
tion of  both  salesmanship  and  advertising,  introduced 
frequently  by  one  kind  of  combination  and  supported 
by  another  kind.  The  nature  of  the  goods  to  be  sold 
is  the  most  important  consideration  in  arriving  at 
a  selling  method.  In  any  case,  the  producer  cannot 
rely  upon  the  assistance  of  any  standard,  cut-and- 
dried  plan  of  procedure,  but  must  himself  devise 
methods  suitable  to  the  prevailing  conditions.  Since 
his  aim  is  to  secure  the  volume  of  sales  that  will  return 
him  the  greatest  net  profits,  whatever  method  of  dis- 
tribution or  combination  of  methods  promises  to  pro- 
duce that  result,  will  be  the  one  adopted.  If  the 
method  fails  to  justify  itself,  it  will  be  dropped  for 
another.     Changes  fundamental  in  method  and  even 


22  MARKETING 

in  policy  are  not  infrequently  made  in  the  search  for 
the  plan  that  shall  meet  all  requirements  of  internal 
and  external  conditions  for  the  time. 

4.  Boundaries  of  the  market, — In  reaching  out 
after  markets  the  producer  must  not  fail  to  realize 
their  limitations.  These  limitations  are  determined 
largely  by  the  nature  of  the  product  to  be  marketed. 
For  example,  a  seasonal  product  commonly  has  a  time 
limitation  on  its  sale.  A  luxury  is  bought  by  the 
few  and  not  by  the  many.  An  article  may  appeal  to 
only  one  class  or  section.  At  the  same  time  the  pro- 
ducer cannot  accept  limitations  at  their  face  value. 
Often  they  are  matters  merely  of  trade  custom,  gen- 
eral fashion  or  mental  inertia,  and  may  be  overcome. 
For  example,  fur  manufacturers  have  created  a  sum- 
mer market  for  the  product.  Northern  manufac- 
turers of  warm  weather  goods  develop  a  Southern 
or  South  American  demand.  The  use  of  luxuries 
spreads  downwards.  And  goods  that  seem  to  have 
few  uses  turn  out  upon  inquiry  to  have  many.  Lim- 
itations are  to  be  considered  rather  as  difficulties  and 
suggestions  of  possible  opportunity  rather  than  as 
fixed  barriers. 

The  variable  human  element  here  revealed  is  an 
important  consideration  in  marketing.  The  pro- 
ducer must  roughly  estimate  the  purchasing  power  of 
the  classes  he  is  attempting  to  reach,  bearing  in  mind 
the  fact  that  altho  numbers  increase  as  lower  groups 
in  the  same  market  are  included  as  potential  buyers, 
the  per  capita  purchasing  power  decreases.     This  in 


FIELD  OF  MARKETING  23 

turn  leads  to  a  consideration  of  other  factors  in  the 
problem  of  selhng,  such  as  geographical  location  (the 
advantages  offered  for  instance,  by  the  city  as  a  mar- 
ket as  compared  with  the  country)  and  the  training, 
environment,  education  and  economic  position  of  the 
persons  forming  the  prospective  markets.  All  these 
factors  influence  wants  and  have  a  part  in  determining 
consumer  demand  and  thus  help  to  indicate  the  ac- 
cepted boundaries  of  the  producer's  market. 

5.  Mapping  out  a  plan  of  campaign, — Whatever 
plan  of  campaign  is  adopted  by  the  producer  in  mar- 
keting his  product,  it  must  be  the  result  of  careful 
analysis.  It  would  seem  unnecessary  to  make  this 
statement  were  it  not  for  the  fact  that  many  men  still 
settle  problems  of  distribution  by  rule  of  thumb 
methods,  first  guessing  at  the  way  to  build  up  a  market 
and  then  following  up  the  guess  with  a  kind  of  selling 
campaign  which  has  only  a  gambler's  chance  of  being 
successful. 

If,  after  consideration,  the  producer  has  decided  to 
employ  salesmen  in  marketing  his  product,  the  men 
should  be  carefully  selected,  trained  and  supervised. 
If  the  selling  is  to  be  done  by  advertising,  there  must 
be  an  advertising  department  organized,  possibly  an 
advertising  agency  selected,  a  policy  determined,  ad- 
vertisements written,  space  arranged  for  and  the  re- 
sults of  the  advertising  checked  up.  All  this  work 
is  done  "under  cover,"  so  far  as  the  public  is  concerned. 
The  public  sees  only  the  smooth  running  machinery 
in   efficient    salesmanship    and   attention-compelling 


24  MARKETING 

advertisements  and  is  not  aware  of  the  arduous  plan- 
ning, the  problems  met  and  solved  and  the  selling 
schemes  that  have  been  considered,  adopted  or  re- 
jected before  any  part  of  the  selling  campaign  is 
launched. 

The  manufacturer  who  is  about  to  start  on  a  selling 
campaign  is  like  a  general  before  engaging  in  battle. 
He  must  have  surveyed  the  field  in  broad  perspective ; 
he  must  know  his  product  as  a  general  knows  his 
troops.  He  must,  so  far  as  possible,  be  familiar  with 
his  market  and  the  various  ways  of  reaching  it,  just 
as  a  general  knows  the  topography  of  a  battlefield  and 
the  lines  of  communication.  Without  this  informa- 
tion the  producer  cannot  undertake  a  real  selling  cam- 
paign, but  will  make  only  a  "hit  or  miss"  attempt  to 
gain  a  market. 

6.  Single  purpose  of  selling  activities, — Just  as  any 
well-organized  business  has  all  its  activities  coordi- 
nated, so  in  any  selling  organization  it  is  necessary  for 
salesmanship  and  advertising  to  work  together.  Un- 
happily this  has  not  alwaj^s  been  the  case.  Sales 
managers  and  advertising  managers  have  set  up  par- 
tisan methods  for  increasing  business.  Certain  types 
of  salesmen  have  had  "no  use  for  advertising"  and 
some  advertising  men  have  failed  to  see  that  their  work 
is  in  the  nature  of  salesmanship.  Even  manufac- 
turers at  times  have  followed  the  misguided  policy  of 
keeping  advertising  and  sales  campaigns  separate. 

This  lack  of  coordination  between  salesmanship  and 
advertising  is  passing  away,  but  it  has  not  yet  disap- 


FIELD  OF  MARKETING  «5 

peared.  There  is  still  enough  of  it  remaining  to  merit 
the  warning.  The  only  way  to  guard  against  a  mis- 
understanding of  these  agencies  of  distribution  is  to 
study  their  work  as  complementary  parts  of  market- 
ing. Viewed  in  this  light,  the  work  of  both  can  be 
made  increasingly  effective. 

7.  Need  for  studying  marketing. — For  the  manu- 
facturer it  is  not  sufficient  that  production  is  an  open 
book  to  him.  He  needs  to  be  similarly  sure  about  dis- 
tribution. He  needs  to  know  the  basic  facts  about 
markets;  to  analyze  and  weigh  them  and  then  con- 
struct a  far-reaching  selling  policy  that  dcv^etails  his 
factory  needs  and  capacity. 

8.  Survey  of  the  marketing  field, — Marketing, 
which  embraces  the  first  part  of  this  Text,  is,  there- 
fore, taken  up  with  a  consideration  of  the  trade  factors 
of  the  distributive  system  from  the  producer's  point 
of  view.  It  includes^a  study  of  the  product,  the 
market  and  the  trade  channels  and  elements  used  by 
the  producer  in  disposing  of  the  product.  The  trade 
relations  which  the  producer  establishes  with  the  job- 
ber, the  retailer  and  the  consumer  are  next  considered. 
A  discussion  of  special  problems  which  come  to  every 
producer,  like  those  of  good-will  and  price  mainte- 
nance, follows.  Finally,  the  specific  ways  in  which 
markets  are  reached  and  campaigns  are  planned  are 
taken  up  in  detail. 

Thruout  this  part  of  the  Text  the  point  of  view 
taken  is  that  of  the  producer,  but  the  principles  dis- 
cussed are  fundamental  to  all  forms  of  selling.     A 


26  MARKETING 

detailed  consideration  of  the  problems  which  more 
directly  affect  the  merchant  is  taken  up  in  "Merchan- 
dising" which  forms  the  second  part  of  the  Text. 

REVIEW 

1.  What  conditions  in  the  business  world  today  make  the 
manufacturer's  problem  one  of  distribution  rather  than  one 
of  production? 

2.  State  what  factors  tend  to  form  the  limits  or  bound- 
aries of  the  manufacturer's  market. 

3.  Are  salesmanship  and  advertising,  considered  as  meth- 
ods of  marketing,  in  conflict?  How  may  their  results  be 
coordinated? 


CHAPTER  III 

STUDY  OF  THE  PRODUCT 

1.  Necessary  considerations  before  marketing, — 
Before  any  product  can  be  marketed  three  important 
elements  are  to  be  considered.  These  are  the  product, 
the  market  and  the  way  in  which  the  market  is  to  be 
reached.     Let  us  consider  first  the  product. 

2.  Testing  the  product. — A  product  is  not  gener- 
ally pronounced  ready  for  the  market  until  it  has  been 
subjected  to  various  tests.  These  are  of  two  general 
kinds,  technical  tests  made  in  the  laboratory  and  work- 
shop and,  if  the  article  is  also  of  a  mechanical  nature, 
practical  tests  to  make  sure  that  it  may  be  easily  oper- 
ated by  the  purchaser. 

An  instance  of  extreme  care  sometimes  taken  is 
furnished  in  the  case  of  Crisco,  a  product  of  the  Proc- 
ter and  Gamble  Company.  This  was  given  a  series 
of  tests  lasting  over  a  period  of  two  years  before  it 
was  accepted  as  a  salable  product.  During  this  time 
it  was  tried  out  in  chemical  laboratories,  cooking 
schools,  private  homes  in  different  sections  of  the 
country,  restaurants  and  many  otheir  places.  Many 
changes  were  made  in  its  composition  as  a  result  of 
the  experience. 

A  technical  test  may  fail,  however,  to  do  more  than 

V  — 4  27 


28  MARKETING 

establish  technical  utility.  It  cannot  tell  in  advance 
what  the  market  will  say.  Only  a  practical  tryout 
will  settle  that.  For  example,  an  attachment  for  a 
talking  machine  w^as  useful  and  inexpensive,  but  did 
not  sell.  The  failure  was  at  length  found  to  be  prob- 
ably due  to  inartistic  design.  The  manufacturer 
thereupon  cut  away  part  of  the  metal  to  show  an 
interior  mechanism.  This  change  and  a  wash  of  gold 
plate  so  improved  the  attachment  in  appearance  that 
sales  were  easily  made  even  at  an  advance  in  price. 

The  introduction  of  a  new  product  to  the  market 
is  not  the  only  logical  occasion  for  study  and  test. 
Machinery,  package  and  label  designs  go  out  of  date 
or  need  freshening,  for  competitive  reasons.  The 
same  is  true  of  the  size  of  the  package.  When  war 
conditions  forced  upon  American  manufacturers  a 
choice  either  of  raising  their  prices  or  reducing  the 
package,  many  chose  the  latter  alternative. 

3.  Tests  for  quality, — Manufacturers  test  not  only 
their  own  products  but  frequently  also  those  of  their 
competitors.  A  candy  manufacturer  in  order  to  find 
out  how  his  confections  rank  with  those  of  his  rivals 
must  necessarily  compare  their  respective  products. 
The  method  is  to  lay  out  samples  of  his  own  and  other 
brands,  without  identification,  and  have  his  expert 
tasters  pass  on  the  quality  of  each.  Next  his  chemists 
analyze  the  ingredients.  The  manufacturer  himself 
then  studies  the  shapes,  color  and  appearance  of  the 
candies  and  the  design  of  the  packages  and  labels. 
If  the  results  do  not  satisfy  him  in  every  particular, 


STUDY  OF  THE  PRODUCT  29 

he  makes  the  necessary  adjustments  in  his  recipes, 
processes  or  designs. 

A  manufacturer  who  is  very  sure  of  his  product 
may  turn  these  tests  to  promotional  account,  as  the 
Colgate  Company  did  a  few  years  ago.  Three  per- 
fumes manufactured  by  this  company  and  three  of 
foreign  make  were  placed  in  plain  bottles.  A  number 
of  women  were  invited  to  make  public  tests  and  de- 
clare their  first,  second  and  thu'd  choice.  Some  103 
women  did  so.  The  test  showed  that  63  or  nearly 
two-thirds  of  them  had  chosen  the  domestic  perfumes, 
altho  41  of  the  number  had  previously  expressed  a 
preference  for  foreign  scents. 

4.  Raw  materials, — There  is  no  more  important 
question  to  the  manufacturer  than  that  of  raw  ma- 
terials. An  adequate  supply  must  be  assured  him 
at  reasonable  price  or  he  cannot  continue  in  business. 
If  he  is  able  to  control  his  own  source  of  supply,  he 
may  easily  effect  various  economies  which  are  out  of 
the  question  for  competitors  not  similarly  circum- 
stanced. 

The  United  States  Steel  Corporation,  controlling, 
as  it  does,  every  step  of  production  from  raw  ma- 
terial to  finished  product,  has  many  advantages  over 
other  steel  manufacturers  who  are  obliged  to  purchase 
their  raw  materials  in  the  open  market  and  pay  a 
higher  price  for  them. 

A  full  and  steady  supply  of  raw  materials  allows  the 
the  manufacturer  to  plan  his  output  more  or  less 
closely,  and  do  so  also  with  relation  to  his  marketing 


30  MARKETING 

campaign.  If  he  cannot  count  upon  the  supply,  he 
is  likely  sooner  or  later  to  run  into  trouble.  An  auto- 
mobile manufacturer,  for  example,  who  has  agreed 
to  deliver  5000  automobiles  in  a  season  and  then  after 
making  arrangements  to  market  this  number  finds  that 
he  will  be  unable  to  secure  a  sufficient  supply  of  steel 
at  satisfactory  prices  will  be  obliged  either  to  cancel 
a  number  of  orders  or  else  make  his  deliveries  at  a 
loss,  and  he  might  actually  be  forced  to  choose  the 
latter  alternative  in  order  not  to  forfeit  the  good- will 
of  his  agents. 

As  the  cost  of  raw  materials  helps  to  fix  the  price 
of  the  finished  product,  manufacturers  must  watch 
the  supply  market  closely  for  price  fluctuations. 
This  is  especially  important,  of  course,  when  the  manu- 
facturer has  standardized  the  price  of  his  product 
and  cannot  afford  to  change  it  for  any  but  the  most 
compelling  of  reasons.  If  he  cannot  change  the  price 
of  his  product  and  cannot  depend  on  a  stable  supply 
at  a  stable  price,  he  must  protect  himself  by  buying 
in  large  quantity  when  the  price  is  low  and  perhaps 
carry,  on  speculation,  more  than  he  may  actually  need. 
The  only  alternative  is  to  set  his  own  price  high  enough 
to  cover  all  possible  advances.  But  this,  of  course, 
places  him  at  a  disadvantage  in  competition  with 
closer  buyers. 

5.  Plant  cajmcity, — After  the  urgent  questions  of 
demand,  competition  and  marketing  have  been  an- 
swered, the  next  most  important  are  those  dealing  with 
the  volume  of  sales  expected  and  the  plant  capacity 


STUDY  OF  THE  PRODUCT  31 

that  is  to  take  care  of  it.  Sales  and  output  ought,  of 
course,  to  move  up  together.  Failure  to  keep  the 
factory  fully  busy  entails  a  loss  of  possible  profits, 
while  on  the  other  hand  an  oversold  condition  long 
continued  brings  more  capital  into  the  industry  and 
thus  increases  competition  and  eventually  selling 
costs.  Capable  managers  prepare  their  sales  cam- 
paigns with  reference  to  production  possibilities,  and 
plan  their  plant  extensions  on  the  basis  of  what  the 
sales  will  or  may  be  made  to  show. 

Manufacturers  sometimes,  nevertheless,  undei*- 
take  elaborate  campaigns  without  exercising  this  pre- 
caution. An  advertising  agent  induced  a  manufac- 
turer to  advertise  on  a  large  scale.  The  advertising 
agent  made  all  the  necessary  arrangements  in  con- 
nection with  the  copy  and  mediums,  but  did  not  go 
into  the  question  of  how  any  large  increase  in  sales 
might  be  handled  by  the  factory,  and  the  manufac- 
turer on  his  part  gave  the  matter  no  attention.  Nei- 
ther expected  immediate  results.  The  advertisement, 
however,  unexpectedly  "went  big"  and  produced  so 
much  business  that  the  factory  was  swamped  with 
orders.  Many  orders  had  to  be  refused  and  a  large 
amount  of  the  publicity  gained  was  thus  wasted. 

6.  Labor  supply, — Any  analysis  of  the  product 
must  also  consider  the  labor  supply.  If  unskilled 
labor  is  employed,  is  there  an  adequate  supply  of  it  at 
hand?  If  skilled  labor  is  used,  can  the  operators  be 
trained  up  in  the  plant,  or  is  it  necessary  to  go  out- 
side for  them?     Union  labor  versus  an  open  shop 


32  MARKETING 

policy — this  question,  too,  may  force  itself  upon  the 
manufacturer  in  the  form  of  a  strike  that  may  inter- 
rupt production  and  so  affect  marketing,  or  else  in  the 
form  of  a  possible  sales  appeal,  if  the  "union  label" 
is  a  desirable  or  necessary  addition  to  the  goods. 

7.  Costs  and  pro  jits. — While  goods  are  usually  sold 
at  the  price  they  can  be  made  to  bring  in  the  market 
instead  of  on  the  mathematical  basis  of  "cost-to-make" 
plus  "cost-to-sell"  plus  "profit  desired,"  it  is  only  by 
knowing  his  costs  every  step  of  the  way,  by  going  on 
that  mathematical  basis  of  pricing,  that  any  maim- 
facturer  may  be  reasonably  certain  of  escaping  dis- 
aster. Unless  he  knows  the  cost  of  his  raw  materials, 
his  capital,  his  rent  and  interest,  labor,  salaries  and 
commission,  etc.,  the  manufacturer  may  eventually 
find  himself  doing  business  at  a  loss.  This  is  not  at 
all  an  uncommon  experience.  A  gas  engine  manu- 
facturer, for  instance,  sold  his  entire  output  to  a  mail- 
order house  at  a  price  which,  after  hasty  figuring, 
looked  good  to  him.  Later,  some  doubt  as  to  the 
wisdom  of  the  deal  having  risen  in  his  mind,  he  in- 
stalled a  cost-finding  system.  It  revealed  to  him  that 
the  price  he  had  accepted  for  his  goods  covered  only 
the  cost  of  raw  materials  and  manufacture  and  left 
him  no  profits  whatever. 

8.  Influence  of  price.-— One  of  the  strongest  influ- 
ences upon  demand  is  the  price.  A  low  price  must,  it 
is  evident,  greatly  assist  in  the  development  of  de- 
mand, while  a  high  price  must  have  the  opposite  ef- 
fect.    When  the  American  Thermos  bottles  were  put 


STUDY  OF  THE  PRODUCT  33 

out  at  $7.50  to  $12  they  were  purchased  as  a  luxury 
by  a  restricted  class  and  the  sales  were  necessarily 
somewhat  limited.  As  soon  as  prices  were  reduced 
to  $1  and  upward,  the  demand  instantly  broadened. 

When,  however,  quality  is  in  the  balance  with  price, 
the  situation  may  be  different ;  price  may  have  to  con- 
form to  the  requirements  for  quality.  A  case  in  point 
is  suggested  by  an  experience  in  the  flour  milling 
trade.  Some  years  ago,  the  ten  thousand  or  so  millers 
of  the  country  were  each  proclaiming  his  own  product 
the  best,  and  yet  all  were  competing  on  a  price  or  cut- 
throat basis,  and  none  had  courage  enough  to  fix  for 
himself  a  j^rice  that  was  fair- and  adequate,  and  stick 
to  it.  The  advantage  of  course  rested  with  the  larger 
mills  since  they  could  buy  their  wheat  in  the  world's 
markets  at  the  lowest  prices,  while  smaller  mills  had 
to  grind  higli-grade  local  wheat  which  gave  them 
scarcely  enough  margin  of  profit  for  existence. 

The  situation  was  one  that  many  lines  have  gone 
thru.  As  in  other  cases,  some  one  eventually  saw 
the  light.  It  was  a  small  concern,  the  Russell- Miller 
Milling  Company,  in  Xorth  Dakota.  It  decided 
that  there  were  enough  bakers  and  housewives  in  the 
country  who  wanted  quality  first  and  last  in  their 
flour  to  support  a  house  that  guaranteed  it.  So  it 
broke  away  from  the  general  and  meaningless  asser- 
tion of  "best  on  earth"  and  adopted  as  its  slogan  the 
legend  "Occident  flour — costs  more — worth  it."  Not 
only  did  the  house  build  up  a  highly  successful  busi- 
ness on  this  policy,  but  its  success  helped  to  put  an 


34  MARKETING 

end  to  the  previously  prevailing,  demoralizing  regime 
of  price  competition. 

9.  Naming  the  product, — Before  a  new  product  is 
launched  upon  the  market,  a  suitable  name  must  be 
found  for  it.  The  matter  will  be  seen  to  assume  not 
a  little  importance  when  it  is  understood  that  it  in- 
volves trade-marks,  good-will  and  advertising  con- 
siderations. Many  names,  the  "Gold  Dust  Twins," 
for  example,  are  said  to  have  a  good-will  value  of 
more  than  a  million  dollars  each.  The  largest  houses 
give  the  most  care  to  the  selection  of  a  brand  designa- 
tion and  put  it  thru  all  sorts  of  "acid  tests"  before 
finally  adopting  it. 

A  leading  question  in  this  connection  is:  Can  the 
name  chosen  be  protected  by  registry  at  the  United 
States  Patent  Office;  is  it  original  and  does  it  avoid 
certain  forbidden  grounds?  In  choosing  a  name, 
therefore,  the  manufacturer  will  do  well  to  scrutinize 
carefully  the  names  of  products  in  his  own  and  other 
fields.  Whatever  other  failings  a  trade-mark  may 
have,  it  must  not  fail  to  be  original.  Protective 
records  should  be  secured  so  that  in  case  a  competitor 
should  make  claim  to  the  trade-mark  years  after  it 
has  been  established,  unassailable  proof  against  such 
claim  may  be  advanced.  Trade-mark  specialists  give 
advice  on  this  and  related  points. 

Besides  meeting  the  registry  requirements,  the  name 
chosen  should  also  be  distinctive  and  striking.  It 
should  help  to  sell  the  goods  and  not  confuse  them 
with  other  goods  of  somewhat  similar  name.    When 


STUDY  OF  THE  PRODUCT  35 

the  well-known  Procter  and  Gamble  Company  de- 
cided to  put  a  naphtha  soap  on  the  market  they  called 
it  the  "P  &  G  Naphtha,"  even  tho  a  similar  soap, 
Fels-Xaphtha,  had  been  on  the  market  for  some  time. 
This  name  bore  such  a  close  resemblance  to  that  of 
the  Fels  product  that  many  consumers,  moved  by  the 
Procter  and  Gamble  advertising,  but  with  the  older 
name  lingering  in  their  memory,  called  for  "P  &  G 
Fels-Xaphtha"  and  naturally  got  the  Fels  product 
many  times.  This  of  course  was  so  much  business 
lost  to  the  newly  advertised  goods.  Arbitrary,  in- 
vented names  like  Uneeda,  Nabisco,  Yuban,  Ryzon, 
Crex  and  Socony  are  better  than  such  colorless  names 
as  Standard,  Acme,  Star  and  American,  which  are 
used  for  hundreds  and  thousands  of  other  products 
and  may  be  confused  with  some  of  them. 

Whether  a  name  is  easily  pronounced  or  not  is  also 
to  be  considered.  Rather  than  call  for  Clicquot  Club 
ginger  ale  by  name,  some  persons  might  take  another 
brand  which  seemed  easier  to  pronounce.  It  would 
be  interesting  to  know  how  far  the  names,  Bon  Ami, 
Sanatogen,  Creme  Elcaya,  Djer-Kiss,  have  affected 
sales  thru  their  apparent  difficulty  of  pronounciation. 
Some  manufacturers  spell  the  name  phonetically  just 
beneath  the  brand  name ;  others  who  did  so  for  a  time 
liave  abandoned  the  practice.  It  is  hard  to  tell 
whether  and  how  much  an  odd  name  helps  or  harms. 
I'robably  the  best  way  is  to  make  sure  that  it  is  not 
too  odd. 

Brevity,  too,  is  desirable  in  a  name.     You  will  find 


36  MARKETING 

few  words  over  six  or  seven  letters  among  the  invented 
names.  The  fewer  letters,  the  larger  they  may  be  on 
label  and  posters  and  in  advertisements.  Finally, 
while  a  purely  descriptive  name,  i.  e.,  "Superlative," 
**Best,"  "Only,"  etc.,  is  refused  registry,  somewhat 
the  same  effect  may  be  gained  by  choosing  a  name 
carrying  a  suggestion  of  the  qualities  in  question. 
For  a  white  soap  probably  no  better  name  could  be 
chosen  than  "Ivory,"  or  for  fast  black  stockings  none 
more  suggestive  than  "Onyx." 

10.  Quality  of  attraction. — Attractiveness  of  ap- 
pearance is  always  st  strong  selling  point.  This  is 
especially  true  for  food  and  toilet  articles,  but  it  is 
true,  in  some  measure,  of  everything.  Even  a  ma- 
chine is  better  for  looking  neat  and  shapely,  rather 
than  clumsy  and  angular.  The  more  senses  to  which 
products  and  their  packages  can  be  made  to  appeal, 
the  greater  will  be  their  strength  in  competition. 

Appearance  may  often  be  the  chief  or  only  point 
of  superiority  in  a  product  over  competing  products. 
Some  years  before  the  war,  the  English  Government 
became  alarmed  over  the  inroads  which  German  com- 
petition was  making  in  Great  Britain.  A  commission 
appointed  to  investigate  the  situation  and  decide  the 
reason  for  it,  reported  that  the  German  goods  were 
"inferior"  to  the  English  goods  in  materials  and  work- 
manship and  were  higher  in  price  but  that  the  designs 
of  German  merchandise  and  the  packages  in  which 
it  was  sold  were  so  much  more  attractive  that  the 
British  public  preferred  them  to  those  of  home  manu- 


STUDY  OF  THE  PRODUCT  37 

facture.  We  cannot  say  that  they  were  not  right. 
We  must  keep  in  mind  that  "quality"  and  not  what 
manufacturers  think  they  ought  to  have  is  what  con- 
sumers w^ant. 

11.  The  container, — Besides  studying  the  product 
itself,  the  manufacturer,  if  his  goods  are  to  be  sold 
in  package  form,  should  devote  some  time  to  planning 
the  package  or  container.  Size,  shape,  weight  and 
color  are  all  considerations.  The  manufacturer  of 
Washington  Crisps,  a  breakfast  food,  based  his  intro- 
ductory advertising  appeal  on  the  fact  that  the  size 
of  his  package  was  larger  than  the  standard  size  made 
by  his  competitors.  Log  Cabin  Maple  Sj^rup  is  put 
up  in  cans  shaped  like  miniature  log  cabins.  While 
this  is  inconvenient  for  packing  it  makes  an  admirable 
means  of  identification.  Many  articles  like  soap, 
shaving  cream,  face  creams  and  powders  resemble  each 
other  so  closely  that  in  order  to  develop  any  marketing 
appeal  at  all  the  manufacturers  must  develop  distinc- 
tive packages  for  talking  points,  as  well  as  identifica- 
tion. 

Color  is  an  excellent  means  of  identification.  One 
manufacturer  of  toilet  articles  used  the  same  color 
scheme  for  all  packages  and  reproduced  these  colors 
whenever  possible  in  his  advertising.  It  is  becoming 
customary  with  all  manufacturers  to  adopt  a  uniform 
style  for  all  members  of  a  "family  of  products,"  on 
account  of  the  advantage  in  advertising.  The  colors 
of  competitive  packages  are  also  a  consideration.  A 
brown  package  was  selected  for  Yuban  coffee  prin- 


38  MARKETING 

cipally  because  there  were  no  other  solid  brown  pack- 
ages on  the  grocers'  shelves  and  hence  Yuban  would 
attract  special  attention.  The  same  reasoning  gov- 
erned the  selection  of  a  blue  label  for  Ryzon  baking 
powder. 

.  12.  Examining  the  product  for  selling  points. — In 
order  to  find  the  best  selling  points  of  the  product  be- 
fore it  is  placed  on  the  market  the  salesmen  and  the 
advertising  men  must  carefully  dissect  it,  pick  it  to 
pieces,  in  order  to  find  its  every  possible  use.  This 
will  also  frequently  point  out  the  best  way  of  reaching 
a  market. 

One  sales  manager  made  use  of  a  set  of  charts  for 
this  purpose.  On  the  fii^st  chart,  which  was  divided 
into  five  columns  to  correspond  with  the  five  senses, 
were  noted  the  physical  facts  about  the  product  that 
appeal  to  each  of  the  senses.  The  second  chart  was 
for  functions;  on  this  was  shown  what  the  product  did. 
The  third  chart  told  where  and  by  whom  it  was  made. 
The  fourth  bore  a  detailed  account  of  how  the  goods 
were  made  and  their  ingredients.  The  fifth  chart 
listed  the  most  important  sales  arguments  to  con- 
sumers and  the  sixth  applied  the  same  information  for 
dealers.  By  using  system  in  his  sales  analysis  of  the 
product,  the  sales  manager  made  sure  that  no  prime 
point  was  overlooked. 

How  important  it  is  to  study  the  product  from  the 
right  angle  of  approach  is  shown  by  the  fact  that  the 
selling  point  which  is  the  most  important  from  the 
manufacturer's  standpoint  may  not  sell  the  goods  at 


STUDY  OF  THE  PRODUCT  39 

all.  It  is  said  that  the  first  selling  appeal  of  the 
manufacturers  of  Felspar  varnish  was  based  on  the 
quick  drying  features  of  the  product.  While  this  in- 
terested the  dealers  it  made  no  appeal  to  the  consumers 
and  it  was  not  until  the  point  was  brought  out  that 
Felspar  would  not  be  discolored  by  water — a  point 
much  more  vital  to  consumers — that  the  consumer 
campaign  was  successful. 

13.  Demand  for  the  product, — A  study  of  the  pro- 
duct is  not  complete  without  a  study  of  the  possible 
demand.  Is  there  a  market  for  the  product?  If 
not,  can  people  be  made  to  want  it?  Before  any  in- 
vestment is  made,  these  questions  must  be  weighed, 
for  it  depends  upon  the  way  they  are  answered 
whether  the  business  is  to  succeed  or  fail. 

Many  influences  focus  on  demand.  If  the  article 
is  novel  to  the  buying  public,  the  manufacturer  of  it, 
to  secure  the  public's  attention,  must  distinguish  it 
from  other  products.  Since  nobody  has  blazed  the 
way  in  the  same  line  under  the  same  conditions,  he  will 
have  a  marketing  problem  all  his  own.  If,  on  the 
other  hand,  the  product  resembles  others  already  on 
the  market,  the  manufacturer  may  be  guided  by  pre- 
cedents in  launching  it.  For  example,  package  oat- 
meal was  much  more  easily  introduced  to  the  buying 
public  than  were  vacuum  cleaners,  because  oatmeal 
had  previously  been  sold  in  bulk,  while  the  nearest 
thing  to  a  vacuum  cleaner  was  the  markedly  different 
carpet  sweeper. 

Demand,  too,  is  influenced  by  the  status  in  which 


40  MARKETING 

the  product  is  put,  whether  a  luxury  or  a  necessity. 
Altho  these  terms  are  elastic  and  change  with  the 
times,  a  luxury  of  our  grandparents  being  a  necessity 
in  our  day — typewriters  for  instance  were  first  a  busi- 
ness luxury — nevertheless  a  new  product  must  make 
its  appearance  on  some  particular  price  level  and 
must  appeal  to  the  class  of  people  who  can  afford  the 
price. 

The  volume  of  the  demand  is  another  consideration. 
Will  the  article  sell  only  once  to  an  individual,  a 
family  or  a  business  concern,  or  is  it  a  "repeater,"  and 
above  all  a  rapid  repeater?  Some  articles  of  re- 
stricted demand,  like  machinery,  which  sell  at  a  high 
price  and  carry  a  wide  margin  of  profit,  can  be  mar- 
keted without  "repeat"  orders.  But  this  is  not  pos- 
sible with  a  low-priced  article  like  food,  on  which  the 
profit  per  unit  may  be  a  cent  or  less.  To  attain  large 
profits,  sales  must  be  enormous  and  that  is  not  possi- 
ble unless  people  buy  over  and  over  again.  Clothing 
is  an  admirable  "repeat"  article;  popular  trade- 
marked  clothing  if  consistently  pushed,  may  keep  the 
same  customers  for  years. 

Some  articles  may  be  developed  into  repeaters  by 
revolutionary  improvements.  For  instance,  the  old 
style  razor,  barring  injury,  lasted  a  lifetime  or  more, 
and  grew  better  with  age.  It  was  often  handed  down 
from  one  generation  to  the  next.  Moreover,  many 
people  could  not  shave  themselves  and  had  to  patron- 
ize barbers  or  grow  beards.  This  made  the  sale  of 
razors  as  slow  as  that  of  thermometers  today.     Then 


STUDY  OF  THE  PRODUCT  41 

the  safety  razor  was  invented.  This  not  only  made 
more  self -shavers,  but  it  created  a  large  new  repeat 
market  for  the  sale  of  the  separate  wafer  blades. 

14.  Estimating  consumption, — ^With  certain  prod- 
ucts fairly  definite  estimates  of  demand  may  be  se- 
cured. This  is  especially  true  in  the  case  of  food- 
stuffs, because  the  Government  publishes  statistics  of 
annual  per  capita  consumption.  By  dividing  the 
total  amount  consumed  in  the  United  States  by  the 
population,  the  amount  of  the  per  capita  consumption 
will  be  obtained.  Multiplying  the  annual  per  capita 
consumption  by  the  population  in  a  district  will  give 
the  manufacturer  the  annual  consumption  for  that 
area.  It  will  be  a  more  difficult  task  to  find  the  pro- 
portion of  this  demand  which  each  food  manufacturer 
is  probably  satisfying,  but  he  must  do  it  in  order 
properly  to  estimate  the  proportion  which  he  himself 
may  control. 

In  making  any  estimates  on  the  demand  for  food- 
stuffs, the  manufacturer  should  bear  in  mind  that  the 
rate  of  increase,  even  for  staple  articles,  taken  over 
a  period  of  years,  is  very  different  for  different  prod- 
ucts. The  per  capita  consumption  of  sugar  for  in- 
stance increased  108  per  cent  in  40  years  while  that 
of  tea  increased  only  38  per  cent. 

Another  way  of  estimating  possible  consumption  is 
to  take  a  known  quantity  of  something  affecting  the  de- 
mand or  supply  and  from  that  estimate  the  supply 
or  demand  itself.  For  example,  from  the  number  of 
bags,  boxes,  cartons  or  bottles  sold  to  one  or  more 


42  MARKETING 

competitors  an  investigation  may  yield  a  fairly  ac- 
curate estimate  of  the  total  sales  of  the  products  for 
which  the  bags,  etc.,  are  used.      , 

An  ingenious  use  of  statistics  in  marketing  has  been 
made  by  JNIr.  R.  S.  Patrick,  a  diamond  drill  manu- 
facturer of  Duluth.  Mr*  Patrick  knowing  the  num- 
ber of  drills  used  in  the  ore  districts  served  by  him 
and  the  average  wear  of  diamonds  per  foot  of  rock 
drilled,  is  able  from  these  data  to  calculate  the  number 
of  carats  of  new  diamonds  periodically  needed  and  so 
fix  the  proportion  of  these  his  own  salesmen  should 
sell. 

Large  manufacturing  establishments,  figuring  over 
a  period  of  years  to  establish  sound  bases  for  their 
marketing  plans,  have  been  able  to  calculate  within 
five  per  cent  of  the  amount  of  product  which  subse- 
quently was  found  to  be  consumed  in  a  new  territory. 
The  use  of  statistics  for  estimating  consumption  is 
becoming  more  and  more  general  in  business. 

15.  Testing  out  demands  in  advance. — It  is  highly 
desirable  to  "feel  out"  the  market  in  advance  by  a 
small  test  campaign,  if  the  results  obtained  are  known 
to  be  a  reliable  indication  of  what  would  happen  to 
a  larger  investment.  It  is  not  always  possible  to  ob- 
tain dependable  deductions  from  even  a  very  careful 
study  of  both  territory  and  production.  The  only 
thoroly  trustworthy  evidence  is  actual  sales  under  nor- 
mal conditions.  Before  launching  a  large  and  expen- 
sive campaign  to  introduce  a  new  product,  most  manu- 
facturers nowadays  try  it  out  in  several  small  local 


STUDY  OF  THE  PRODUCT  43 

campaigns  in  to^vns  or  territories  remote  from  each 
other.  A  comparison  of  the  results  will  give  valuable 
information.  When  the  market  is  not  "felt  out"  in 
this  way,  there  is  danger  of  heav}^  loss.  This  is  well 
shown  in  the  publishing  business.  A  dozen  different 
publishing  houses,  according  to  the  estimate  of  one 
of  them,  have  spent  in  fifteen  years  over  a  half  million 
dollars  in  a  fruitless  endeavor  to  sell  sets  of  books  on 
agriculture.  One  of  the  concerns  spent  $50,000  to 
advertise  them.  On  the  other  hand,  the  market  for 
technical  books  has  often  been  successfully  determined 
by  sending  out  a  few  thousand  letters  before  a  line 
of  the  book  had  been  written.  If  sufficient  demand 
was  not  aroused  the  book  was  not  produced  and  those 
who  had  subscribed  had  their  money  refunded  with 
an  accompanying  letter  stating  that  the  publication 
of  the  book  had  been  delayed  or  indefinitely  postponed 
and  that  the  subscriber  would  be  notified  in  due  course. 
The  difference  of  the  two  markets  should  not  be  over- 
looked. Technical  literature  has  a  steady  if  not  large 
demand  from  the  engineering  and  other  professional 
classes.  Farmers  have  only  recently  begun  to  take, 
in  any  large  numbers,  a  scientific  interest  in  their  work. 
The  time  to  have  made  an  investigation  of  the  market 
for  agricultural  books  was  before  publishing. 

16.  Demand  affected  by  nature  of  goods. — It  is 
advisable  to  determine  at  the  outset  whether  the  pro- 
duct to  be  introduced  is  a  staple  article  with  promise 
of  a  permanent  demand  or  whether  it  can  hope  to 
be  a  fad  only.     If  the  former,  a  large  immediate 

V~5 


44  MARKETING 

investment  in  good-will  may  be  justified  for  the  pur- 
pose of  heading  off  competition  and  in  the  expec- 
tation of  securing  large  ultimate  returns.  If  the  lat- 
ter, no  investment  should  be  made  that  does  not  look 
to  immediate  returns.  A  manufacturer  of  roofing 
materials,  for  instance,  who  develops  a  specialty  with 
novel  talking  points,  will  not  only  have  to  make  a 
large  plant  outlay,  but  if  he  w^ishes  to  make  the  most 
of  the  opportunity  opened  up  for  him  by  the  improve- 
ments before  his  competitors  develop  new^  products 
of  their  own  to  oppose  it,  he  must  also  make  a  still 
further  investment  in  sales  or  advertising  power. 
Many  businesses  or  departments  do  not  and  are  not 
expected  to  "turn  the  corner,"  that  is,  reach  a  self- 
supporting  status,  for  three,  four  or  five  years.  On 
the  other  hand,  the  manufacturer  of  a  product  of 
only  temporary  appeal,  like,  say,  a  war  map,  a  globe, 
a  war  puzzle,  trench  boots,  etc.,  must  keep  his  eyes 
firmly  fixed  on  the  demand  in  sight  and  be  ready  to 
change  with  it. 

17.  Seasonal  demand, — If  a  product  sells  only  dur- 
ing the  summer  or  winter  or  at  the  Christmas  or  Eas- 
ter holidays,  special  consideration  will  be  necessary  to 
enlarge  the  market.  The  alternatives  are  finding 
new  fields,  new  classes,  spreading  the  demand  over  the 
balance  of  the  year,  and  adding  other  products  to 
supplement  it  and  keep  the  factory^  running  on  off- 
seasons. One  instance  of  the  way  in  whick  this  may 
be  done  is  afforded  by  a  manufacturer  of  metal  gift 
novelties.     At  first  these  sold  only  during  the  Christ- 


STUDY  OF  THE  PRODUCT  45 

mas  holiday  season.  Gradually  he  lengthened  the 
season  and  introduced  other  novelties  of  the  same 
nature  until  he  had  a  "family"  of  novelties  in  various 
finishes  that  had  a  market  most  of  the  year.  Simi- 
larly, a  factory  making  ice  skates  bridges  over  the 
dull  season  by  making  roller  skates.  A  manufacturer 
who  prefers  to  specialize  rather  than  develop  a  line  of 
products  will  find  the  foreign  market  a  possible  help 
when  the  domestic  demand  falls  off. 

Seasonal  demands  naturally  must  be  gauged  in 
advance.  The  facilities  of  the  United  States  Weather 
Bureau  are  of  much  help  in  doing  this.  The  manu- 
facturer of  waterproof  goods  such  as  umbrellas,  rain 
coats  and  rubbers  may,  for  instance,  make  a  study 
of  rain-fall  in  different  sections,  and  know  more  or 
less  precisely  the  requirements  of  each. 

It  is  well  to  remember,  too,  that  seasons  come  earlier 
in  some  parts  of  the  United  States  than  in  others. 
Spring  clothing,  for  example,  is  sold  in  New  Orleans 
during  February,  while  in  Duluth,  INIay  is  often  early 
for  its  sale.  Underwear,  straw  hats,  in  fact,  almost 
all  articles  of  wearing  apparel  have  their  selling  sea- 
sons. If  the  manufacturer  sells  thru  dealers,  the 
dealers  have  their  season  for  buying.  The  seasons 
are  the  same  for  certain  products,  like  automobiles, 
but  for  others,  like  wearing  apparel,  as  long  a  period 
as  six  months  sometimes  intervenes  between  the  time 
the  order  is  given  by  the  dealer  and  the  time  the  goods 
are  received.  The  manufacturer  who  can  secure 
returns  from  the  sale  of  his  product  steadily  thruout 


46  MARKETING 

the  year  will  follow  business  policies  different  from 
those  of  the  man  with  only  two  selling  seasons,  and 
who  in  off  seasons  must  either  discharge  most  of  his 
salesmen  or  put  them  at  missionary  work,  which  for 
the  time  at  least  is  unproductive. 

18.  "Family  of  products/' — The  question  of 
whether  a  manufacturer  shall  market  one  product  or 
a  line  of  products  is  one  to  be  determined  by  practical 
considerations.  A  single  product  is  easier  to  handle. 
If  it  has  a  rapid-repeating  quality  or  a  wide  market, 
it  may  call  for  all  the  energy  and  capital  of  its  pro- 
moters. But  the  "line"  also  possesses  certain  market- 
ing advantages,  in  addition  to  advantages  in  manu- 
facture, administrative  policy  and  financing. 

In  the  first  place,  a  traveling  salesman  can  sell  a 
line  almost  as  easily  as  he  can  sell  a  single  product, 
sometimes  more  easily.  This  reduces  the  selling  cost 
of  each  item  and  permits  more  profit  on  each.  In  the 
same  way,  it  reduces  the  pro  rata  cost  of  advertising. 

Furthermore,  a  line  gives  prestige  to  all  its  items 
and  the  number  and  variety  of  the  items  enhance  the 
good-will  of  the  whole.  The  average  line  gets  more 
display  in  the  dealer's  store  and  show  window  than 
the  average  single  product. 

A  strong  line,  especially  when  advertised,  crowds 
many  weak,  single  competitors  out  of  the  store  or 
market:  dealers,  that  is  to  say,  can  only  buy  about 
so  much;  if  they  buy  a  line,  some  competing  single 
products  will  have  to  suffer. 

Lastly,  a  line  of  products  is  a  great  advantage  to 


STUDY  OF  THE  PRODUCT  47 

the  manufacturers  in  helping  him  to  prevent  retail 
price-cutting.  A  dealer  may  be  willing  to  sacrifice 
his  profits  on  a  single  product,  and  risk  being  cut  off 
by  the  manufacturers,  but  he  will  think  twice  before 
jeopardizing  his  interest  in  a  line. 

It  will  be  seen  that  the  idea  of  the  "family  of  pro- 
ducts" contains  the  germ  of  monopoly  and  may  con- 
ceivably be  carried  to  extremes.  Judged  from  its 
recent  utterances,  the  Federal  Trade  Commission  evi- 
dently thinks  that  this  is  being  done  in  the  case  of  the 
large  meat  packers.  Whatever  restrictions  shall  be 
put  upon  the  practice  in  the  future  can  hardly,  how- 
ever, affect  the  ordinary  producer.  For  him,  the 
"family  of  products"  may  still  be  a  vital  means  of 
developing  his  business. 

REVIEW 

Describe  the  various  technical  tests  which  may  be  made.  Why 
are  they  necessary? 

In  what  sense  are  the  availability  of  raw  materials  and  the 
capacity  of  the  plant  vital  factors  in  the  marketing  plan? 

How  should  the  name  for  the  product  be  chosen? 

What  factors  are  to  be  considered  in  analyzing  demand? 


CHAPTER  IV 

STUDY  OF  THE  MARKET 

1.  What  constitutes  the  market,— Aher  a  manufac- 
turer has  disposed  of  his  goods  to  the  jobbers  and  the 
jobbers  have  passed  them  on  to  the  retailers,  there  is 
still  another  step  that  the  goods  must  take  before 
the  manufacturer  is  assured  of  a  satisfactory  issue 
to  his  efforts  and  a  promising  future  for  his  business. 
The  retailer  must  pass  the  goods  on  to  the  consumer. 
Then,  if  the  consumers  are  satisfied  with  them,  a 
foundation  for  confidence  is  laid  and  reorders  follow. 
It  is  the  consumers  that  constitute  the  real  market 
of  the  manufacturer.  The  jobbers  and  retailers  are 
only  middlemen.  After  their  work  is  done,  it  still 
rests  with  the  consumers  either  to  buy  or  to  refuse 
to  buy.  If  they  refuse,  neither  retailer  nor  jobber 
will  buy  again,  and  the  manufacturer  is  left  without 
a  demand. 

Not  all  manufacturers  produce  for  the  general  or 
largest  market.  Some  produce  for  dealers,  some  for 
jobbers,  some  for  other  manufacturers.  A  manu- 
facturer, for  instance,  who  makes  cardboard  boxes 
finds  his  ultimate  market  among  the  manufacturers, 
jobbers  and  retailers  who  need  cardboard  boxes  to 
pack  their  goods.  A  manufacturer  of  store  fixtures 
considers  the  dealers  as  his  market. 

48 


STUDY  OF  THE  MARKET  49 

2.  Sources  of  the  jnarket, — The  manufacturer 
naturalh'  must  know  where  his  market  is  to  be  found ; 
he  should  know^  also  its  character.  This  is  not  always 
obvious.  Automobile  manufacturers,  for  instance, 
had  been  many  jears  in  business  before  they  dis- 
covered that  while  the  man  picked  the  car  and  paid 
the  money,  it  was  often  the  wife  who  told  him  what 
to  pick  and  how  much  to  pay.  Now  they  are  finding 
that  the  good  will  of  the  boy,  too,  is  worth  something. 
He  may  not  only  know  more  about  cars  than  his 
father  and  be  able  to  influence  his  father's  and 
mother's  choice,  but  in  a  few  years  he  will  be  a  buyer 
himself  and  he  is  worth  cultivating  to  some  extent 
on  that  ground  alone.  The  selection  of  furniture, 
house  furnishings  and  numerous  other  goods  for  which 
the  head  of  the  family  pays  the  bill  is  usually  left  to 
the  wife,  daughter  or  sister.  In  these  cases,  means 
are  taken  to  reach  the  woman  and  boy  behind  the 
man.  On  the  other  hand,  the  makers  of  mechanical 
toys  have  found  that  the  father  many  times  is  buying 
for  himself  when  he  thinks  he  is  buying  for  the  boy. 
Consequently,  the  advertising  must  be  aimed  to  reach 
the  father  as  well. 

Whether  the  appeal  shall  be  made  directly  to  men 
or  to  women  is  an  important  consideration;  it  deter- 
mines sales  channels,  advertising  arguments,  sales 
arguments,  the  choosing  and  training  of  a  sales  force, 
the  fixing  of  prices,  the  use  of  demonstrations,  sam- 
pling and  in  fact  all  the  many  phases  of  the  market- 
ing plan. 


50  MARKETING 

A  searching  study  of  the  buying  habits  of  the 
market  under  survey  will  often  disclose  possibilities 
that  have  been  passed  over  unnoticed  by  competitors. 
A  manufacturer  about  to  market  a  new  line  of  hosiery, 
for  instance,  discovered  by  such  a  study  that  rural 
and  small  town  people  at  that  time  were  less  accus- 
tomed to  buying  hosiery  by  brand  than  city  people. 
He,  therefore,  centered  his  appeal  on  the  country 
trade  and  in  this  way  made  a  market  for  his  goods, 
while  escaping  the  close  competition  prevailing  in 
the  cities. 

For  many  staple  products  the  available  market  is 
so  wide  that  manufacturers  are  often  able  to  con- 
centrate with  advantage  upon  a  special  field.  They 
choose  either  the  city  or  the  country  trade,  the  man  or 
the  woman,  the  adult  or  the  child.  After  the  value 
of  each  field  has  been  determined,  the  manufacturer 
should  choose  the  "line  of  least  resistance"  and  focus 
his  whole  selling  campaign  upon  it. 

3.  Geographical  limits  of  markets,— 'WhWe  a  grow- 
ing business  may  expand  from  a  sectional  territory 
to  country-wide  distribution  or  eventually  be  called 
upon  to  satisfy  a  world  demand,  it  must  be  borne  in 
mind  that  with  every  large  expansion,  the  manufac- 
turer will  encounter  new  and  often  radically  different 
systems  of  competition  and  transportation.  This 
precludes  the  formulation  of  a  single  selling  plan 
for  all  territories.  In  large  cities,  it  may  be  desirable 
for  an  implement  manufacturer  to  operate  factory 
branches  and  stores;  in  small  cities,  he  may  have  dis- 


STUDY  OF  THE  MARKET  61 

tributors  and  in  small  towns,  sell  thru  dealers.  Mar- 
ket limits  are  also  sharply  defined  by  custom.  Yellow 
laundry  soaps  sell  generally  thruout  the  United 
States,  but  the  states  of  the  Northwest  have  shown 
a  preference  for  white  laundry  soap.  White  corn 
meal  is  popular  in  the  South  and  yellow  corn  meal 
is  demanded  in  the  Northern  States.  There  are  many 
such  instances  and  a  manufacturer  about  to  introduce 
a  new  product  should  ascertain  what  local  or  sectional 
preferences  or  prejudices,  if  any,  may  affect  the  sale 
of  it. 

Until  quite  recently  American  manufacturers  with 
some  notable  exceptions  hseve  been  satisfied  to  confine 
their  selling  efforts  to  the  domestic  market.  It  has 
been  a  large  and  profitable  one  and  its  character  and 
tendencies  are  more  or  less  familiar  to  them.  The 
foreign  market,  on  the  other  hand,  has  been  a  closed 
book  to  most  American  producers.  This  condition 
is  changing  in  part,  because  of  the  war.  The  Govern- 
ment is  making  it  progressively  easier  for  manufac- 
turers to  enter  the  foreign  field.  They  may  now  com- 
bine to  do  foreign  business.  American  banking  con- 
nections have  been  established  abroad,  discount  com- 
panies have  been  organized,  and  more  extensive  trans- 
portation facilities  are  rapidly  being  secured.  The 
movement  has  already  manifested  itself  in  radical 
changes  in  the  sales  policies  and  sales  methods  of 
many  manufacturers. 

4.  Methods  of  making  purchases, — In  making  pur- 
chases consumers  are  governed  by  a  number  of  con- 


62  MARKETING 

siderations  which  amount  to  buying  habits.  The 
manufacturer  entering  a  competitive  field  should 
acquaint  himself  with  them.  If  consumers  usually 
purchase  certain  goods  in  bulk,  is  it  possible  to  change 
the  demand  to  one  for  package  goods?  If  articles 
have  always  been  sold  by  their  common  names,  what 
is  the  chance  of  inducing  the  public  to  call  for  them 
by  brand  names?  The  manufacturer  who  asks  him- 
self questions  such  as  these  cannot  answer  them  intelli- 
gently unless  he  has  information  as  to  what  the  people 
of  his  territory  want,  and  why. 

Specific  articles  contributing  to  personal  comfort, 
health  or  appearance  may  secure  such  a  strong  hold 
upon  the  consumer  as  not  ordinarily  to  be  broken  by 
a  competitive  appeal  to  the  weaker  motives  of  utiHty 
or  economy.  For  example,  a  man  who  has  been 
suited  for  years  with  a  certain  brand  and  style  of  hat 
will  probably  not  change  to  another  style  or  brand 
without  considerable  thought  and  comparison.  The 
same  man,  however,  will  readily  abandon  one  kind  of 
office  ink  for  another  that  is  said  to  be  cheaper  in  price 
or  perhaps  higher  in  quality.  It  is  not  his  comfort 
or  appearance  that  is  concerned.  By  weighing  just 
such  considerations  as  these  with  respect  to  his  own 
product,  the  manufacturer  will  be  enabled  to  estimate 
the  amount  of  business  he  should  secure  in  the  com- 
petitive field  and  come  to  some  conclusion  as  to  the 
direction  his  selling  efforts  should  take. 

The  agency  thru  which  a  product  is  ordinarily  sold 
is  an  important  consideration.     Does  the  consumer 


STUDY  OF  THE  MARKET  63 

usually  buy  from  the  manufacturer  direct  or  thru  a 
dealer?  Does  he  purchase  the  goods  by  going 
directly  to  one  of  the  sources  of  supply,  or  does  he  buy 
only  on  personal  solicitation?  Such  office  devices  as 
adding  machines  and  cash  registers  must  have  a  de- 
mand created  for  them  in  the  latter  way.  Advertis- 
ing will  seldom  bring  a  business  man  into  the  sales- 
man's office  to  purchase  an  adding  machine,  nor  will 
it  induce  the  average  man  to  visit  a  life  insurance 
office  in  order  to  take  out  a  policy.  Business  men 
do  not,  on  the  other  hand,  desire  to  be  solicited  in  their 
offices  for  articles  which  they  can  buy  in  stores.  In 
spite  of  this,  many  manufacturers  occasionally  do 
send  salesmen  around  to  get  in  touch  with  the  con- 
sumer, generally  in  an  intensive  effort  to  make  or 
recover  ground,  perhaps  in  connection  with  an  adver- 
tising drive,  or  on  some  other  plausible  pretext  which 
will  gain  them  admission. 

Some  other  buj^ing  habits  of  the  consumer  must 
be  studied  with  special  care.  Does  he  expect  credit 
and  will  refusal  of  credit  tend  to  curtail  sales?  Does 
he  buy  in  large  or  small  amounts?  What  price  is  he 
in  the  custom  of  pajqng  for  a  similar  product  ?  What 
is  his  present  preference  and  why?  Some  habits  are 
due  merely  to  absence  of  taste  or  conviction,  while 
others  are  deeply  ingrained.  It  is  obviously  unsafe 
to  go  into  any  expensive  campaign  to  change  the 
latter  without  the  best  kind  of  evidence  that  it  has 
a  chance  to  succeed.  A  very  successful  manufacturer 
of  chewing  gum  spent  many  thousands  of  dollars 


54  MARKETING 

trying  to  get  the  public  to  "Buy  it  by  the  box,"  but 
did  not  carry  his  point. 

5.  Tendency  of  market  to  increase  or  decrease, 
— A  manufacturer  usually  enters  a  field  only  when 
there  are  signs  of  a  strong,  active  demand  for  goods 
of  his  kind  or  line.  He  naturally  expects  to  start 
with  a  part  of  the  demand,  whatever,  in  fact,  may  be 
deflected  from  goods  already  on  the  market.  A 
strong  current  demand,  moreover,  is  a  promising  indi- 
cation of  a  latent,  unexpressed  one. 

If  business  in  the  field  chosen  shows  but  a  slight 
increase  over  that  of  the  previous  year,  or  is  stationary 
or  even  decreasing,  the  wise  business  man  will  make 
an  investigation  before  committing  himself  to  a  start. 
It  may  be  that  the  market  has  reached  a  point  of 
saturation  due  possibly  to  temporary  conditions.  It 
may  be,  on  the  other  hand,  that  the  article  he  plans 
to  produce  is  being  superseded  by  something  more 
useful.  This  happens  all  the  time.  For  instance, 
while  candles  are  still  being  made  the  demand  is  not 
increasing  at  the  same  rate  as  the  population  because 
of  the  adoption  of  more  modern  methods  of  lighting. 
Such  a  market  holds  out  little  promise  to  a  newcomer. 
However,  it  does  not  follow  that  every  improvement 
puts  an  old  article  out  of  business.  More  brooms 
than  ever  per  capita  were  sold  after  the  carpet  sweeper 
came  in  and  the  only  effect  the  vacuum  cleaner  has 
had  thus  far  on  the  latter  is  to  increase  its  sales.  The 
explanation  is  that  every  improvement  simply  edu- 
cates more  people,   and  makes   a  broader   market, 


STUDY  OF  THE  MARKET  55 

People  will  not  always  bother  to  use  a  carpet  sweeper 
when  a  broom  will  do,  so  they  have  both. 

It  is  probably  safe  to  say  that  the  static  or  the 
declining  market  does  not  represent  a  typical  con- 
dition. Articles  are  not  always  displaced  every  time 
a  competitive  improvement  appears.  Usually  the 
improvement  is  copied,  or  the  article  is  otherwise 
modified  to  meet  the  new  demand.  If  the  sales  for 
a  commodity  are  not  on  the  increase  it  is  in  most  cases 
because  the  manufacturer  of  it  is  neglecting  or  over- 
looking the  opportunities  there.  When  such  a  mar- 
ket is  revealed  to  investigation,  it  should  be  attractive 
to  the  outsider,  since  it  offers  a  field  for  real  construc- 
tive salesmanship,  where  business  may  be  much  more 
easily  secured  than  in  a  hard  fought  competitive 
field. 

6.  Competitive  influences, — Forewarned  is  fore- 
armed. The  more  a  manufacturer  can  learn  about 
his  competitors,  the  better  equipped  he  will  be  to  enter 
the  selling  field.  To  ignore  competition  or  to  be 
ignorant  of  it  is  to  fight  in  the  dark.  There  are 
various  agencies  from  which  a  large  amount  of  trade 
information  may  be  secured  in  a  legitimate  way.  The 
number  of  competitors  and  their  trade  names  can 
be  gotten  from  lists  prepared  by  commercial  agencies 
and  oftentimes  published  in  trade  publications. 
Commercial  agencies,  too,  can  also  furnish  such  infor- 
mation as  the  length  of  time  competitors  have  been 
in  business,  the  extent  of  their  resources,  etc. 

In  undertaking  a  study  of  the  competitive  field. 


56  MARKETING 

the  manufacturer  wishes  to  know  primarily  how  the 
market  is  divided.  If  he  finds,  for  example,  that 
of  fourteen  rival  organizations  supplying  the  territory, 
one  has  secured  75  per  cent  of  the  business,  another  has 
10  per  cent  and  that  the  remainder  is  divided  among 
the  other  competitors,  he  gains  a  clearer  idea  of  the 
kind  of  competition  he  has  to  face  than  if  he  merely 
knows  he  has  fourteen  rivals.  If,  to  keep  his  plant 
running,  he  needs  10  per  cent  of  the  goods  which  the 
territory  consumes,  he  will  find  it  cheaper  and  easier 
at  first  to  try  for  the  business  of  the  "trailers"  than  to 
challenge  the  strongly  entrenched  leader. 

A  market  in  which  there  are  a  few  dominant  leaders 
and  a  large  number  of  "trailers"  appeals  more  to 
a  progressive  manufacturer  than  one  in  which  there 
is  a  large  number  of  competitors  all  having  nearly  the 
same  relative  strength.  If  the  largest  manufacturer 
in  a  field  has  only  15  per  cent  of  the  business  and  a 
number  of  his  competitors  are  each  able  to  secure 
from  10  to  12  per  cent  of  it,  the  newcomer,  if  he 
plans  for  a  large  output,  must  from  the  start  rank 
well  up  with  the  leaders.  In  order  to  accomplish  this 
difficult  undertaking  he  must  not  only  be  well  pro- 
vided with  capital  but  also  possess  in  himself  or  in 
the  person  of  his  sales  manager  a  great  deal  of  selling 
strategy. 

Then  there  are  the  marketing  methods  of  competi- 
tors to  consider.  What  policies  do  they  follow  with 
reference  to  sales  channels,  advertising,  dealer  cooper- 
ation, credits  and  a  host  of  other  matters  entering 


STUDY  OF  THE  MARKET  67 

into  a  sales  campaign?  The  manufacturer  needs  this 
information,  not  for  the  purposes  of  imitation,  but 
in  order  to  profit  by  the  mistakes  which  others  have 
made.  Novelty  in  sales  methods  may  no  doubt  be 
valuable,  but  it  is  not  to  be  secured  by  sacrificing  the 
good-will  of  dealers  or  consumers.  Oftentimes-  the 
proved  methods  are  best. 

Finally,  it  is  essential  that  the  manufacturer  have 
a  knowledge  of  the  prices  charged  or  discounts  allowed 
by  his  competitors  to  jobbers,  retailers  and  consumers, 
as  well  as  the  margin  of  profit  allowed  to  each  class 
of  middleman.  The  manufacturer  who  prices  his 
goods  to  dealers  at  such  a  figure  that  they  cannot 
make  selling  expenses  out  of  them  will  not  only  lose 
in  cooperation  but  will  soon  be  without  dealers.  To 
charge  consumers  a  higher  price  for  an  article  which 
does  not  obviously  exceed  in  quality  articles  with 
which  it  competes  will  eventually  kill  any  campaign. 
On  the  other  hand  to  fix  the  price  below  the  prevail- 
ing market  price  will  tend  to  demoralize  trade  condi- 
tions and  bring  in  cut-throat  competition  with  all  its 
train  of  business  evils. 

7.  Transportation  limits  markets, — No  consider- 
ation of  markets  would  be  complete  that  did  not  take 
in  the  subject  of  transportation.  In  order  to  shorten 
hauls  and  save  expense,  not  only  must  a  factory  be 
advantageously  situated  with  respect  to  the  source 
of  its  raw  materials  and  also  have  abundant  labor 
at  hand,  but  it  must  be  close  to  its  markets.  It  is  not 
always  possible  to  find  all  three  factors  grouped  in 


68  MARKETING 

one  locality  or  section.  Labor  supply  may  then  be 
the  most  important  factor  to  consider.  Nearness  to 
raw  materials  will  similarly  count  for  more  if  they 
are  bulky  and  carry  relatively  higher  freight  charges 
than  do  the  manufactured  goods.  Again,  a  factory 
producing  for  a  general  demand  might  be  well  located 
in  a  small  town  in  the  middle  States,  while  a  factory 
catering  exclusively  to  a  large  city  population  would 
doubtless  find  its  best  site  in  the  city. 

JMore  than  anything  else  probably,  transportation 
limits  the  size  of  a  manufacturer's  market.  He  will 
be  hampered  unless  shipments  of  goods  can  be  made 
quickly,  cheaply  and  at  frequent  intervals.  Discrimi- 
nation against  him  in  the  matter  of  freight  rates  or 
in  transportation  service  will  also  be  injurious.  Such 
discrimination  is  forbidden  by  law,  but  it  sometimes 
takes  place  and  the  manufacturers  must  be  on  the 
lookout  to  protect  themselves. 

Except  in  the  case  of  patented  articles,  such  as 
novelties  which  cannot  be  duplicated  and  branded 
articles  so  widely  advertised  as  to  be  really  specialties, 
the  manufacturer's  market  is  limited  to  the  area  in 
which  his  shipping  charges  do  not  exceed  those  of  his 
competitors.  Some  large  concerns  serve  all  sections 
of  the  country  thru  branch  factories  or  warehouses 
and  in  this  way  are  able  to  lessen  materially  their 
shipping  charges.  The  advantages  of  a  location  with 
good  favorable  transportation  facilities  is  well  shown 
in  the  case  of  the  Standard  Oil  Company.  This  com- 
pany with  a  refinery  in  Bayonne,  New  Jersey,  is 


STUDY  OF  THE  MARKET  59 

able  to  reach  New  England  distributing  points  by- 
water  at  a  transportation  cost  which  cannot  be  dupli- 
cated by  competitors. 

For  certain  classes  of  articles,  for  example,  bricks, 
building  stone  and  other  cheap  and  bulky  commodities 
of  universal  use,  the  transportation  limits  are  narrow ; 
nearly  every  section  can  produce  them  for  itself  and 
does  so  when  the  freight  cost  is  excessive.  Other 
articles  of  high  grade  and  compact  size  like  silks  and 
clothing  are  not  affected  by  transportation  costs, 
which  add  only  a  fraction  to  the  total  cost  and  there- 
fore can  seek  the  farthest  markets.  The  principle, 
however,  holds  true — transportation  costs  tend,  the 
not  always  effectively,  to  limit  markets. 

REVIEW 

What  things  must  the  manufacturer  take  into  consideration, 
if  he  is  to  determine  where  his  best  market  lies  ?  What  is  meant 
by  the  purchasing  habits  of  consumers?  Should  a  manufac- 
turer try  to  change  these  habits? 

Does  the  introduction  to  the  market  of  new  and  improved 
articles  mean  that  the  old  article  is  going  to  be  put  out  of  busi- 
ness? How  may  it  be  the  means  of  increasing  sales  of  the  old 
article  ? 

Why  should  a  manufacturer  make  a  study  of  his  competitors' 
products  and  methods  of  marketing? 

Would  you  prefer  to  enter  a  field  in  which  competition  is 
split  among  many  competitors  or  a  field  in  which  a  single  manu- 
facturer now  controls  a  big  proportion  of  the  business? 


V  — 6 


CHAPTER  V 

TRADE  CHANNELS 

1.  Trade  channels  and  their  development, — All 
goods  in  passing  from  the  manufacturer  to  the  ulti- 
mate consumer  follow  certain  routes,  some  direct  and 
others  indirect.  The  routes  are  commonly  called 
trade  channels.  They  may  be  compared  to  several 
kinds  of  railroad  systems.  Some  goods  pass  only 
from  one  point  to  another  on  a  single  line  and  are 
consumed;  these  have  followed  the  direct  route  from 
manufacturer  to  consumer.  Others  start  out  on  the 
main  line  and  complete  their  journey  on  branch  roads 
or  divisions.  Here  we  have  the  manufacturer-re- 
tailer-consumer or  possibly  the  manufacturer-agent- 
consumer  method  of  selling.  Still  other  goods  go 
from  the  trunk  line  to  a  branch  and  from  the  branch 
to  the  smaller  spurs.  The  main  line  is  the  manu- 
facturer, the  branch  is  the  jobber  and  the  spur  the 
retailer,  the  consumer  being  represented  of  course  by 
the  terminus. 

2.  Development  of  trade  channels, — The  earliest 
trade  channels  were,  as  described  in  a  previous  chap- 
ter, direct  connections  between  producer  and  con- 
sumer. This  was  in  the  days  of  barter.  Later,  in 
mediaeval  times,  the  producer,  a  handicraftsman,  still 
sold  his  products  direct  to  the  consumer.     With  the 

60 


TRADE  CHANNELS  61 

widening  of  the  market,  however,  the  handicraftsman 
generally  became  the  employe  of  a  middleman,  who 
retailed  them  to  the  public.  When  the  larger  national 
market  develops,  we  find  a  more  ambitious  middleman 
taking  the  goods  of  the  producers  in  quantity  and 
disposing  of  them  to  retail  middlemen  in  many  dif- 
ferent localities  who,  in  turn,  sell  them  to  the  con- 
sumers. With  the  discovery  of  steam  and  the  devel- 
opment of  power  machinery  and  factory  management, 
the  producing  class  becomes  a  more  influential  factor. 
It  now  sells  to  wholesalers,  who  distribute  to  retailers 
and  the  latter  to  the  consumers.  The  system  has 
many  modifications  and  exceptions,  but  in  the  main, 
for  goods  that  are  retailed,  it  is  the  normal  one. 

3.  Old  chain  of  distribution, — The  rise  of  the  fac- 
tory system  brought  the  producers  from  the  employe 
class  into  that  of  the  merchant,  but  as  the  system 
widened,  more  kinds  of  middlemen  came  between  the 
producer  and  his  market.  Under  the  old  style  of 
market  organization  many  manufactured  products 
often  passed  thru  as  many  as  four  instead  of  two 
channels  from  producer  to  consumer :  ( 1 )  Commission 
merchant;  (2)  jobber;  (3)  wholesaler;  (4)  retailer. 
Occasionally  factors  and  brokers  also  found  a  place 
in  the  line* 

4.  Middlemen  decreasing. — This  type  of  distri- 
bution is  now  confined  to  the  textile  trades.  The 
general  tendency  in  business  has  been  to  lessen  the 
number  of  middlemen.  Some  of  their  functions  are 
now  being  performed  by  other  agencies,  the  risk  on 


62  MARKETING 

goods  in  transit,  storage  or  consignment,  for  example, 
which  was  once  taken  by  one  middleman  or  another, 
now  being  covered  by  insm^ance.  Middlemen  once 
transported  the  goods  they  bought.  The  goods  are 
now  carried  by  rail  and  water  carriers  and  by  parcel 
post.  Some  middlemen  commonly  helped  to  finance 
the  undertakings  of  some  producers,  a  function  now 
more  generally  performed  by  banks.  Middlemen 
were  the  only  agencies  for  making  the  goods  known. 
This  is  now  done  in  a  more  effective  way  by  advertis- 
ing. 

On  the  side  of  the  consumer  too,  the  demand  has 
changed  and  in  turn  forced  other  changes.  Consumer 
demand  for  rapid  supply  of  fresh  styles,  for  example, 
has  caused  a  shortening  of  the  chain  between  the 
producer  and  consumer,  when  the  chain  is  too  long 
or  slow  to  "speed  up."  The  producer  on  his  part  is 
generally  not  unwilling  to  get  away  from  the  whole- 
sale middleman,  when  the  latter,  as  is  sometimes  the 
case,  is  autocratically  controlling  the  output  of  goods, 
reducing  the  producer's  profits  and  even  discourag- 
ing any  contact  whatever  with  the  retailer  and  con- 
sumer, eVen  for  the  purpose  of  learning  those  things 
which  a  producer  must  know  in  order  to  safeguard  his 
business.  By  branding  and  advertising  his  goods, 
the  producer  can  tell  the  whole  story  direct  to  the 
retail  dealers  or  to  the  public.  In  this  ease,  branding 
and  advertising  do  what  the  wholesaler  before  did, 
namely,  identify  or  guarantee  the  goods  and  make 
them  known. 


TRADE  CHANNELS  6S 

5.  Competition  in  present-day  marketing . — When 
trade  channels  were  more  or  less  fixed  in  character, 
as  they  formerly  were  on  account  of  limitations  in 
transportation,  credit,  banking  and  other  facilities, 
the  manufacturer  had  scarcely  any  choice  of  selling 
methods.  He  made  few  attempts  to  open  up  a  con- 
tract with  the  consumer  because  it  would  have  been 
too  expensive  to  maintain.  The  same  conditions 
made  competition  slight  and  essentially  local.  The 
leaders  of  trade  established  the  leadership  by  exploit- 
ing new  countries  rather  than  by  intensively  develop- 
ing old  ones.  Advertising,  one  of  the  most  powerful 
agencies  in  distribution,  had  to  wait  for  the  develop- 
ment of  railroad  and  postal  transportation,  the  mag- 
azine press  and  other  elements  before  it  could  exert 
an  influence  in  changing  trade  customs  and  channels. 
Selling  in  the  old  days  was  comparatively  easy; 
demand  exceeded  supply. 

The  situation  today  is  the  exact  reverse.  An 
almost  constant  excess  of  supply  makes  the  compe- 
tition among  producers  for  the  favor  of  the  public 
a  continuous  incentive  to  change  and  improvement. 
Custom  and  tradition,  therefore,  cut  no  figure  in  the 
market  as  against  economy  and  efficiency.  They 
must  perhaps  be  reckoned  with,  but  they  do  not  deter- 
mine policies.  The  manufacturer  has  a  wide  latitude 
and  choice  and  will  select  the  trade  channel,  selling 
methods  and  territories  which  he  believes  will  bring 
the  best  results. 

6.  Methods  of  trade  in  selling  staples, — Most  sta- 


64.  MARKETING 

pies  are  sold  thru  the  conventional  manufacturer- 
jobber-retailer  channel.  Probably  ninety  per  cent 
of  all  groceries  are  so  sold.  Drug  store  lines,  hard- 
ware and  dry  goods  are  sold  in  the  same  way  even  tho 
in  different  proportions.  The  trade  in  these  com- 
modities forms  a  large  proportion  of  the  entire  retail 
trade.  Many  important  distributors,  however,  sell 
directly  to  retailers  and  some  to  consumers,  while 
many  in  these  lines,  as  well  as  outside  of  them,  use 
different  methods  in  different  territories  or  in  the 
same  territory  at  different  times. 

7.  Functions  of  the  manufacturer, — The  distin- 
guishing characteristic  of  a  manufacturer  is  that  he 
changes  the  form  of  a  commodity.  He  secures  the 
raw  material  and  thru  the  application  of  labor  works 
it  up  into  a  finished  product,  or  else  receives  his  pro- 
duct in  parts  and  assembles  it  into  a  whole  as  in  the 
case  of  automobiles,  watches  and  many  other  products. 
The  farmer  who  raises  wheat  from  seed,  soil  and  labor 
is,  in  this  sense,  a  manufacturer.  So  also  is  the  miller 
who  purchases  the  wheat  and  grinds  it  into  flour. 
So  is  the  baker  who  purchases  the  flour  and  bakes 
it  into  bread.  The  automobile  manufacturer  who 
buys  parts  for  automobiles  in  the  open  market  and 
then  assembles  them  in  his  factory  is  no  less  a  manu- 
facturer than  his  trade  rival  who  forges  every  part 
that  goes  into  the  construction  of  the  car.  The  man 
who  makes  cigars  in  the  rear  of  his  cigar  shop  is  a 
manufacturer  just  as  truly  as  the  powerful  American 
Tobacco  Company. 


TRADE  CHANNELS  65 

8.  The  jobber, — The  jobber  is  so  called  because 
the  typical  middleman  of  whom  he  is  the  evolution 
bought  "jobs"  or  odd  lots  of  goods  and  resold  them 
in  part  or  whole  to  retailers  and  sometimes  other 
jobbers.  The  name  stuck  to  him  because  it  dis- 
tinguished him  from  the  typical  wholesaler  of  the  time 
who  was  either  a  manufacturer  or  the  representative 
of  one  or  more  manufacturers.  The  distinction  no 
longer  exists  and,  as  has  already  been  pointed  out, 
the  words  jobber  and  wholesaler  are  now  used  inter- 
changeably for  one  who  buys  in  large  quantity  from 
manufacturers  and  sells. in  smaller  lots  to  retailers. 
Frequently  a  merchant  is  both  jobber  and  retailer. 
Sometimes  a  jobber  has  no  established  market  and 
differs  only  from  a  broker  in  that  he  carries  a  stock. 
Some  lines  have  sub- jobbers,  who  are  small  jobbers 
serving  a  small  district. 

9.  Tlie  retailer, — The  word  retailer  is  taken  from 
two  words  meaning  "to  cut  again"  and  was  at  first 
applied  to  a  class  of  middlemen  who  purchased  cloth 
by  the  piece,  or  in  quantities,  and  then  cut  off  smaller 
amounts  for  sale  to  consumers.  The  modern  retailer 
buys  goods  and  sells  them  again  without  change  in 
form  to  the  consuming  public. 

10.  TJie  consumer, — The  consumer  is  defined  by 
the  Standard  Dictionary  as  "one  who  uses  up  an 
article  of  exchangeable  value,  either  in  serving  his 
own  wants,  or  in  producing  from  it  another  article 
of  value."  Business  men  commonly  use  the  term, 
however,  to  mean  the  ultimate  or  private  consumer, 


66  MARKETING 

who  uses  for  himself  the  things  that  he  buys  and  who 
does  not  sell  them  again  either  in  their  original  or 
in  an  altered  form — in  short,  the  "man  in  the  street," 
the  "head  of  the  family"  or  the  housewife. 

REVIEW 

What  is  the  general  tendency  in  business  in  the  use  of  the 
middleman  ? 

How  are  some  of  the  functions  formerly  performed  by  middle- 
men now  being  carried  out  by  banks,  insurance  companies,  ad- 
vertising, etc.? 

What  has  been  the  effect  of  the  development  of  transporta- 
tion systems  upon  competition? 

Distinguish  between  manufacturer,  jobber,  retailer  and  con- 
sumer. 


CHAPTER  VI 

SELLING  TO  THE  JOBBER 

1.  Consumer  unfamiliar  with  jobber's  service, — 
Outside  of  the  trade  the  function  of  the  jobber  is  little 
understood.  The  consumer  seldom  comes  in  touch 
with  his  activities.  This  is  the  only  reason  why,  in 
times  of  high  prices,  a  portion  of  the  public  has  come 
to  look  upon  the  jobber  with  suspicion  and  to  con- 
sider the  service  he  performs  as  costly,  in  some  cases, 
even  unnecessary. 

The  indispensable  part  which  the  jobber  plays  in 
distribution  has  been  thus  aptly  described  by  a  writer 
in  "Printers'  Ink": 

The  jobber  is  the  "transfer  station"  of  the  commercial 
world.  He  receives  large  shipments  from  manufacturers, 
subdividing  each  shipment  and  consolidating  the  subdi- 
visions so  that  a  small  quantity  of  each  manufacturer's 
shipments  are  sent  in  one  large  aggregate  to  each  re- 
tailer. This  is  just  the  same  as  making  up  carload  lots 
of  shipments  from  various  towns  to  some  one  town.  If 
we  stop  to  think  what  an  expensive  and  inconvenient  thing 
it  would  be  for  each  manufacturer  to  make  many  small 
shipments  to  retailers,  and  how  much  it  would  add  to  the 
cost  to  consumers,  we  will  cease  to  look  at  the  jobber  as 
adding  unnecessarily   to   the   cost   of  distribution. 

2.  Jobber  specializes  in  distribution, — The  average 
manufacturer  knows  only  the  manufacturing  end  of 
the  business.     He  is  unfamiliar  with  marketing  and 

67 


68  ^  MARKETING 

turns  to  the  jobber  because  the  latter  knows  the  trade, 
knows  what  goods  in  general  will  "take  hold"  and 
what  will  not,  because  the  jobber  can  provide  him 
with  a  clientele  of  fairly  permanent  customers.  The 
manufacturer  finds  it  cheaper,  quicker  and  easier  to 
reach  the  retail  trade  by  making  use  of  the  jobber's 
services  than  by  attempting  it  himself. 

3.  Jobber  provides  sales  force, — The  jobber  pro- 
vides the  manufacturer  with  a  trained  sales  force. 
In  many  lines  this  is  a  great  economy.  What  manu- 
facturer, for  instance,  could  sell  a  competitive  line  of 
groceries  to  the  300,000  retailers  of  foodstuffs  in  the 
United  States  thru  his  own  staff?  He  would  need 
no  less  than  300  men  to  cover  the  territory  properly. 
If,  however,  he  uses  the  jobbers,  he  may  carry  a  staff 
of  not  one-tenth  of  the  number. 

4.  Jobber's  intensive  cultivation  of  markets, — Con- 
trary to  a  somewhat  prevalent  impression,  the  jobber 
works  the  market  as  a  whole  more  thoroly  than  any 
but  the  largest  manufacturer  can  afford  to  do.  When 
an  ordinary  manufacturer  sells  direct  to  the  retail 
trade  his  salesmen  must  take  comparatively  large 
orders  to  make  their  calls  profitable.  A  salesman  of 
catsup,  for  instance,  would  probably  not  call  on  small 
dealers  or  visit  out-of-the-way  places.  The  jobber 
can  do  so  because  catsup  is  only  one  of  ^  thousand 
articles  which  he  sells  and  its  selling  cost  forms  only 
a  small  part  of  the  total  selling  cost  which  he  meets. 
For  this  reason  his  salesmen  can  sell  to  the  smallest 
dealers  and  still  make  a  profit  for  him. 


SELLING  TO  THE  JOBBER  69 

On  the  other  hand,  the  jobber's  salesmen  seldom 
have  time  to  ''push"  a  single  brand  or  line,  even  their 
own,  very  aggressively.  This  is  the  manufactm-er's 
idea  of  intensive  cultivation.  It  can  be  had  from  the 
jobber  under  exceptional  circumstances,  but  the 
manufacturer  will  do  well  not  to  expect  it  unless  he, 
himself,  provides  the  plan,  motive  and  a  good  deal 
of  the  effort. 

5.  Jobber  gives  storage  service, — When  the  manu- 
facturer sells  direct  to  the  retailers  he  must  provide 
his  own  warehouses.  By  selling  thru  the  jobber,  this 
expense  is  saved  to  him.  In  fact,  the  warehousing 
function  is  one  of  the  most  important  the  jobber  per- 
forms. In  connection  with  this  service,  the  shipping 
charge  also  should  be  considered.  The  manufacturer 
shipping  direct  in  bulk,  possibly  in  carload  lots,  to  a 
few  jobbers  instead  of  to  many  retailers,  effects  a 
substantial  saving. 

6.  Jobber's  credit  and  accounting  service. — A 
manufacturer  dealing  direct  with  retailers  must  carry 
a  large  number  of  accounts  entailing  a  large  invest- 
ment of  capital  and  much  credit  risk  as  well  as  con- 
siderable amount  of  clerical  expense.  A  manufac- 
turer of  a  grocery  specialty,  for  example,  with  a  com- 
plete national  distribution,  if  dealing  directly  with 
retailers,  would  have  to  carry  more  than  a  quarter 
of  a  million  accounts.  The  expense  of  bookkeeping, 
of  establishing  credit  relations  and  the  losses  result- 
ing from  bad  debts,  which  keeping  a  large  number  of 
accounts  necessarily  requires  would  be  prohibitive. 


70  .     MARKETING 

No  manufacturer  could  possibly  do  it.  Since  the 
manufacturer,  however,  deals  only  with  the  jobbing 
trade,  the  number  of  his  accounts  will  not  exceed 
2500  at  the  most.  He  has  only  the  credit  standing 
of  these  few  customers  to  keep  track  of  and  he  gener- 
ally gets  his  money  promptly  in  ten  days  or  less. 
Clerical  and  similar  expenses  can  thus  be  kept  at  a 
minimum. 

7.  Using  jobber's  services  in  part, — While  jobbers 
may  be  indispensable  to  a  manufacturer,  it  is  not 
always  necessary  to  use  all  of  the  machinery  they 
provide.  The  manufacturer  can  make  shipments 
direct  from  the  factory  to  the  retailers  on  orders  which 
may  have  been  taken  either  by  the  jobber  or  by  the 
manufacturer's  own  salesmen.  These  "drop  ship- 
ments," as  they  are  called,  are  billed  to  the  jobber, 
w^ho  takes  all  the  responsibility  of  collection.  The 
financial  arrangements  between  the  jobber  and  the 
manufacturer  are  the  same  as  if  the  goods  had  gone 
first  to  the  jobber  and  then  had  been  shipped  by  him 
to  the  retailer. 

Another  instance  of  using  the  jobber's  services  in 
part  is  where  manufacturers  send  their  own  salesmen 
to  call  on  retailers.  In  many  cases  this  is  a  work  of 
coojieration,  the  salesmen  acting  as  trade  missionaries 
to  promote  the  goods  with  the  retailer,  and  to  aid  the 
jobber's  salesmen  in  taking  orders.  If  the  salesmen 
of  the  manufacturer  take  orders  from  retailers,  the 
retailer  is  asked  to  name  the  jobber  to  whom  the  order 
is  to  go.     The  salesman  then  sends  the  order  to  that 


SELLING  TO  THE  JOBBER  71 

jobber,  who  gets  a  commission  on  the  sale.  The 
order  may  be  filled  either  from  the  jobber's  stock  or 
direct  from  the  factory. 

8.  Making  the  jobber's  service  more  profitable. — 
It  has  been  pointed  out  in  criticism  of  the  jobbing 
system  that  in  some  lines  the  merchandise  in  passing 
from  manufacturer  to  retailer  is  packed  and  un- 
packed, assorted  and  freighted,  by  so  many  brokers 
and  jobbers  that  the  price  which  the  consumer  is  made 
to  pay  for  it  is  appreciably  increased.  As  a  remedy 
for  this  situation,  it  has  been  suggested  that  the  jobber 
shall  not  handle  the  goods  at  all,  but  act  solely  as 
sales  agent  and  collector;  that  all  his  orders  shall  be 
taken  either  on  a  drop  shipment  basis  or  else  for  ship- 
ment by  parcel  post,  direct  from  the  factory,  and  to. 
make  the  latter  possible,  retailers  shall  be  encouraged 
to  buy  in  small  amounts.  By  the  use  of  this  plan, 
its  advocates  claim,  the  many  expenses  of  reshipment 
would  be  saved. 

In  many  kinds  of  businesses,  however,  it  is  certain 
that  it  would  be  more  expensive  to  make  a  large 
number  of  small  parcel  post  shipments  than  to  ship 
a  much  larger  quantity  by  freight,  even  with  one  or 
more  reshipments,  and  successive  handlings.  And  in 
other  kinds  of  businesses,  the  annual  saving  if  certain 
would  be  small.  Any  change  from  the  present  sys- 
tem must  probably  be  an  evolution,  rather  than  a 
sudden  breaking  away. 

9.  Jobber  and  the  private  brand. — If  the  only  func- 
tions of  the  jobber  were  those  which  serve  the  inde- 


MARKETING 


pendent  manufacturer,  some  of  the  greatest  difficulties 
that  affect  the  system  would  not  have  arisen.  Most 
jobbers  in  all  lines  put  up  goods  under  their  own 
private  brand  or  label  and  thus  compete  with  many 
of  the  manufacturers  whose  goods  they  distribute. 
In  most  instances,  they  do  not  manufacture  the  goods 
themselves,  but  buy  them  from  the  manufacturers 
whose  factory  output  they  perhaps  control.  In  other 
instances  they  actually  own  and  operate  plants. 
Some  of  the  jobbers  are  themselves  national  adver- 
tisers and,  of  course,-  all  of  them  push  their  brands 
as  strongly  as  they  can. 

In  some  lines,  like  dry  goods,  silk,  etc.,  some  of 
the  jobbers'  private  brands  are  older  than  most  of  the 
manufacturer's  brands  and  the  custom  of  mixed  ser- 
vice and  competition  being  well  established,  there  is 
no  particular  restlessness  on  the  part  of  the  manu- 
facturers or  agitation  for  a  change.  In  other  lines, 
like  the  grocery,  the  jobbers'  private  label  is  a  more 
recent  arrival  and  there  is  widespread  dissatisfaction 
on  both  sides.     And  each  can  make  out  a  case. 

The  jobber  in  one  of  these  latter  lines  says:  "There 
is  little  enough  margin  of  profit  on  the  manufacturer's 
brand,  anyway.  By  selling  department  stores,  mail- 
order houses  and  retail  chains  and  buying  syndicates, 
which  are  rightfully  a  part  of  my  field,  the  specialty 
manufacturer  is  depriving  me  of  the  most  profitable 
trade  there  is  in  it.  He  leaves  me  only  the  little 
retailers  whom  it  is  too  expensive  for  him  to  reach 
and  only  less  so  for  me;  and  also  the  distribution  of 


••1*30       " 


SELLING  TO  THE  JOBBER  73 

bulk  goods  on  which  there  is  little  or  no  profit.  If 
I  am  to  stay  in  business  I  must  make  a  living  profit. 
I  can't  do  it  unless  I  handle  specialties  under  my  own 
label." 

The  manufacturer  on  his  part  says:  "That  is  doubt- 
less true,  but  the  situation  is  not  of  my  creating.  The 
jobbers  started  private  branding  and  I  had  to  go  to 
the  large  buying  units  in  self-defense,  after  I  found 
my  ow^n  brands  being  side-tracked." 

The  truth  is  that  the  jobbers  see  very  clearly  the 
tendency  of  trade-mark  advertising  to  standardize 
products  and  so  eventually  to  standardize  the  jobbing 
function  just  as  it  is  standardizing  production  and 
retailing.  They  see  in  the  growth  of  trade-mark 
advertising  of  manufacturers  a  menace  to  their  inde- 
pendent initiative  and  they  fight  by  every  means  in 
their  power,  the  most  effective  of  which  naturally  is 
trade-mark  promotion  of  their  own. 

10.  Why  manufacturers  make  private  brands, — 
The  situation  is  still  further  confused  by  the  fact  that 
the  trade-mark  owners  themselves  sometimes  assist 
the  jobbers  in  supporting  the  latter 's  private  brands. 
A  manufacturer,  for  example,  may  overestimate  his 
market  and  find  himself  with  goods  in  his  warehouse 
that  he  cannot  sell.  Rather  than  hold  the  surplus 
over  until  the  following  season,  he  offers  them  in  bulk 
to  a  jobber,  altho  he  knows  the  latter  will  brand  them 
with  his  trade-mark  and  sell  them  in  competition. 
The  manufacturer,  however,  looks  on  this  business  as 
"velvet."     He  is  interested  only  in  protecting  the 


74  MARKETING 

good-will  in  his  brand  and  does  not  care  how  many 
other  brands  or  bulk  goods  there  are  so  long  as  his 
brand  is  not  impaired.  He  does  not  look  to  the  job- 
ber to  go  out  of  his  way  to  help  him  and  he  belie  vxs 
his  advertising  makes  it  difficult  for  the  jobber  to 
harm  him. 

Another  manufacturer  brands  only  goods  of  the 
best  class.  Instead  of  marketing  his  goods  of  second 
or  third  quality  under  a  different  brand,  as  some  do, 
he  sells  them  to  a  jobber,  who  promptly  brands  them 
with  his  own  trade-mark.  It  is  not  of  course  true 
that  jobber's  private  brands  are  all  or  most  of  this 
class.     Many  are  of  the  highest  quality. 

There  is  a  class  of  manufacturer  who  does  nothing 
but  make  branded  articles  for  jobbers  or  dealers,  and 
has  no  trade-mark  of  his  own.  He  may  follow  this 
policy  because  it  happens  to  be  a  long  established 
one,  because  he  has  been  well  treated  by  the  jobber, 
because  he  has  no  ambition  to  control  his  own  brands 
and  business,  because  he  does  not  know  how  to  make 
a  market  or  finance  an  independent  venture,  or,  lastly, 
because  he  has  no  stomach  for  a  fight  with  the  jobber, 
which  may  be  necessary  at  first  when  he  breaks  away 
and  launches  his  own  brand. 

11.  Profit  on  private  brands, — The  contention  of 
jobbers  and  retailers  that  there  is  less  profit  on  each 
sale  of  the  average  national  or  standard  brand  than 
there  is  on  the  average  jobber's  private  and  non- 
advertised  competing  brands  is  probably  well  taken. 
But,  as  the  manufacturer  points  out,  profits  in  the 


SELLING  TO  THE  JOBBER  75 

aggregate  are  larger  or  may  easily  be  if  jobbers  and 
retailers  cooperate  in  nursing  and  satisfying  the  de- 
mand aroused  by  the  advertising.  The  manufacturer 
reasons  that  someone  must  create  the  demand  so  that 
the  goods  may  move  quickly  and  be  sold  profitably. 
If  the  jobber  or  retailer  will  not  do  it,  the  manu- 
facturer must.  National  advertising,  he  argues,  cre- 
ates or  focuses  a  demand  which  results  in  easier  sales, 
smaller  selling  expense,  more  rapid  turnover  of  capital 
and  hence  larger  aggregate  profits  to  those  who  handle 
his  goods  than  they  would  get  if  they  had  to  bring 
the  public  to  the  buying  point  themselves. 

12.  Dangers  in  making  private  brands, — The 
trade-mark  owner  who  sells  any  of  his  product  for 
marketing  under  the  private  brand  names  of  jobbers 
or  retailers  may  under  some  conditions  be  sending  out 
a  boomerang.  If  the  same  goods  are  sold  at  one 
price  under  the  manufacturer's  label  and  at  a  lower 
one  under  the  jobber's  or  dealer's  brand  the  public, 
if  it  learns  of  the  practice,  will  depreciate  and  avoid 
the  manufacturer's  goods.  Courts  and  legislatures, 
knowing  the  practice,  have  been  unwilhng  to  sympa- 
thize with  manufacturers  who  do  it  and  yet  ask  for 
price  protection.  However  illogical  the  attitude,  it 
hurts  the  manufacturers'  case. 

If  a  manufacturer  customarily  sells  his  whole  out- 
put to  private  brand  dealers  he  places  himself  at  their 
mercy  and  at  any  time  the  jobber  refuses  to  renew  the 
agreement  may  be  left  with  a  factory,  expensive 
equipment  and  a  big  pay-roll  on  his  hands,  but  no 

V  — 7 


76  MARKETING 

sales  force  and  no  market.  It  was  this  very  condition 
and  the  advantage  which  jobbers  took  of  it  to  hammer 
down  the  manufacturers'  prices  that  started  the  latter 
to  trade-marking  their  goods  for  themselves  and  seek- 
ing the  public's  good-will,  which,  when,  if  given,  ren- 
dered them  independent  of  the  jobber's  power. 

13.  Should  all  goods  bear  manufacturer's  names? — 
Attempts  have  been  made  at  various  times  to  obtain 
legislation  that  shall  eliminate  private  brands  by  re- 
quiring the  manufacturer's  name  to  appear  on  every 
article  manufactured  by  him,  the  assumption  being 
that  dealers  will  not  care  to  admit  they  are  not  the 
manufacturers  of  the  goods  they  market  as  their  own. 

It  is  doubtful  if  legislation  would  accomplish  the 
result  desired.  It  is  known  by  many  that  the  goods 
bearing  retailers'  and  jobbers'  brands  are  generally 
not  made  by  them.  Dealers  are  not  practicing  de- 
ception in  using  private  brands;  hence  it  does  not 
injure  them  with  the  public  to  have  it  known  that 
others  make  their  goods.  Fundamentally,  the  pub- 
lic's only  interest  in  a  brand  is  as  a  means  of  identify- 
ing goods  of  a  given  quality  and  so  patronizing  or  else 
avoiding  them.  Anything  else  in  the  direction  of  im- 
proving the  quality  of  them  or  protecting  the  public 
doubtless  ought,  if  necessary  to  be  done  by  legisla- 
tion, to  be  done  by  outright  prohibition  or  restriction 
rather  than  by  a  roundabout  method  like  brand  regu- 
lation. 

14.  Summing  up  the  case  of  the  private  brand, — 
The  manufacturer  has  no  quarrel  with  the  jobber  who 


SELLING  TO  THE  JOBBER  77 

comes  out  in  the  open  and  says  that  he  is  going  to 
put  his  label  on  goods  manufactured  for  him  and 
therefore  can  serve  no  longer  the  manufacturers  of 
lines  which  compete  with  his.  Every  jobber,  if  he 
so  desires,  may  divide  his  functions  between  manu- 
facturing and  distribution  provided  he  does  so  openly. 
The  manufacturer's  criticism  is  directed  solely  at  the 
jobber  who  assumes  to  cooperate  with  one  hand,  so 
to  say,  and  competes  with  the  other.  Whether  fair 
or  unfair,  it  is  plain  that  the  practice  can  only  result 
in  intensifying  all  the  tendencies  of  which  one  or  the 
other  side  complains  and  perhaps  in  creating  new 
ones  equally  obnoxious.  These  tendencies,  in  a  word, 
are  for  each  element  in  the  system  to  add  other  func- 
tions that  previously  have  been  performed  by  other 
elements.  When  the  jobber  becomes  a  private  brand 
exploiter,  the  manufacturer  sells  direct  to  the  depart- 
ment store.  When  the  retail  chain  grows  strong,  it 
throws  over  the  jobber  and  buys  direct  from  a  manu- 
facturer. 

Conditions  like  these  foster  the  growth  of  large 
trade  units  and  penalize  the  little  ones.  The  logical 
issue  would  be  a  relatively  few  big  concerns  in  each 
line,  doing  both  a  manufacturing  and  jobbing  business 
or  uniting  for  the  less  important  or  at  any  rate  less 
complex  matter  of  jobbing  their  goods  to  a  compar- 
atively few  big  retail  units.  This  is  the  logical  end, 
but  such  a  system  is  not  in  harmony  with  American 
ideals  and  institutions,  and  as  similar  tendencies  that 
have  discovered  themselves  have  been  shut  off  by  the 


78  MARKETING 

courts  and  Congress  before  reaching  their  full  devel- 
opment, it  is  obvious  that  the  present  movement  will 
sooner  or  later  meet  the  same  fate,  providing  the 
reversal  shall  not  previously  have  come  from  within. 

REVIEW 

What  are  the  more  important  services  rendered  to  manufactur- 
ers by  jobbers? 

Do  such  services  tend  to  increase  the  cost  of  products  to  the 
consumer  ? 

Why  do  jobbers  oftentimes  sell  goods  under  their  own  pri- 
vate brands,  when  it  is  evident  that  they  are  not  manufacturers? 

Wherein  lies  the  danger  to  the  manufacturer,  who  allows  Jiis 
entire  output  to  be  taken  up  by  jobbers  under  their  own  private 
brands  ? 

Do  you  think  that  jobbers  and  retailers,  over  a  period  of 
a  year,  make  more  profit  out  of  handling  private  brand  goods 
with  a  large  profit  than  they  would  if  they  pushed  nationally 
advertised  goods,  which  pay  a  smaller  per  cent  of  profit  per  unit  ? 


CHAPTER  VII 

WHOLESALE  MIDDLEMEN 

1.  Functions  of  other  types  of  middlemen, — Even 
if  the  manufacturer  sells  to  jobbers,  he  will  wish  to 
do  some  supplementary  work  in  the  way  of  stimulat- 
ing either  the  jobber's  or  the  retail  trade  or  both» 
For  this  some  manufacturers  maintain  a  more  or  less 
elaborate  selling  organization.  Others,  and  not  al- 
ways the  smaller  manufacturers,  prefer  to  depend  on 
other  classes  of  middlemen,  hereafter  described. 

An  excellent  analysis  of  the  service  rendered  by 
these  intermediate  agencies  in  selling  is  given  by  Dr. 
L.  D.H.Weld,  as  follows: 

The  services  performed  by  commission  houses,  manu- 
facturers' agents,  and  brokers  can  best  be  understood  in 
a  general  way  by  reference  to  the  marketing  functions, 
which  are  as  follows:  assembling,  or  the  seeking  out  of 
commodities  from  various  sources,  making  business  con- 
nections, etc. ;  storing  or  holding  of  goods  at  convenient 
points ;  financing,  or  the  giving  of  credit,  making  loans 
and  advances,  etc.;  assumption  of  risks  from  price  fluctua- 
tion, deterioration,  style  changes,  etc. ;  rearrangement,  or 
the  sorting,  grading,  and  packing  function;  selling  (which 
includes  advertising) ;  and  transportation  (the  most  im- 
portant  feature   of   which   is   the   delivery   service). 

It  appears  that  intermediaries  between  manufacturers 
and  jobbers  perform  but  few  of  these  functions.  They 
rarely    store    commodities    for    their   principals ;    they    as- 

79 


80  MARKETING 

sume  but  little  risk,  because  they  do  not  take  title  to  the 
goods ;  they  have  practically  no  sorting  and  grading  be- 
cause they  sell  in  large  quantities  and  rarely  handle  the 
goods  at  all ;  and  they  do  none  of  the  transporting. 

This  leaves  the  actual  selling  of  the  goods,  which  is 
their  most  important  function;  financing,  which  is  im- 
portant in  the  textile  trades,  but  not  in  the  hardware  and 
grocery  trades;  and  assembling,  which  they  perform  by 
representing  manufacturers  who  are  often  located  in  dif- 
ferent  parts    of   the    country. 

2.  Overlapping  of  functions. — At  one  time  each 
type  of  middleman  had  a  fairly  definite  field  of  action 
and  held  closely  to  it.  But  more  recently,  for  the 
same  reasons  that  have  produced  the  upheaval  in  the 
jobbing  field,  houses  in  each  of  these  subsidiary  classes 
have  been  reaching  out  into  other  fields  and  perform- 
ing other  than  their  original  functions,  without,  how- 
ever, changing  their  designations.  These  names  have 
not,  consequently,  their  former  precise  significance. 
Nevertheless,  in  order  to  make  the  situation  clear,  it 
is  better  to  tell  what  these  names  and  functions  nor- 
mally are,  prefacing  the  description  with  a  word  of 
warning  that  they  are  much  mixed  and  that  the  manu- 
facturer who  wishes  help  along  one  of  the  lines  will 
save  time  by  looking  at  once  for  the  function  and  not 
the  name. 

3.  Manufacturer's  selling  agent, — Some  manufac- 
turers market  their  entire  product  thru  one  or  more 
sales  agents.  These  agents  sell  on  a  commission  basis. 
When  more  than  one  agent  is  employed,  each  is 
assigned   a  territory.     Such  manufacturer's  agents 


WHOLESALE  MIDDLEMEN  81 

are  common  in  the  hardware  trade  where  the  produc- 
tion units  are  often  small  and  a  factory's  output  is 
frequently  confined  to  a  single  kind  of  goods,  as 
chisels,  saws,  hammers,  etc.  These  circumstances 
give  the  selling  agent  a  firm  hold  of  the  trade. 

In  other  trades,  as  in  textiles,  where  factory  units 
may  grow  to  much  larger  size,  this  form  of  selling 
often  marks  a  transitional  stage  in  the  development 
of  a  factory.  At  the  outset,  the  proprietors  may  feel 
that  they  should  give  their  entire  time  to  production, 
and  that  they  have  neither  time  nor  capacity  for 
creating  and  operating  a  sales  organization.  They 
resort  to  the  selling  agent,  and  until  the  factory  has 
assumed  a  certain  size  and  stability  which  enables 
them  to  turn  from  production  to  selling  problems 
find  it  profitable  to  avail  themselves  of  his  service. 

All  factories  do  not  grow  beyond  this  condition. 
Many  instances  could  be  cited  of  large  and  well-estab- 
lished concerns  which  continue  to  depend  on  selling 
agencies  to  market  their  goods.  This  is  true  in  such 
lines  as  hosiery,  underwear  and  gloves,  in  which  only 
a  few  large  manufacturers  have  sales  organizations 
of  their  own. 

4.  What  the  sales  agent  does. — The  sales  agent 
enters  into  a  contract  with  the  manufacturer.  The 
contract  determines  specifically  the  scope  of  his 
authority.  His  dealings  with  his  customers  are  bind- 
ing on  his  principal  as  long  as  he  acts  within  that 
restricted  scope  and  sometimes  beyond  it,  as  when, 
for  example,  he  does  what  is  usual  or  customary  in 


82  MARKETING 

the  trade,  and  so  to  the  customer's  eyes  acts  within 
his  apparent  authority,  even  tho  he  may  have  been 
expressly  forbidden  to  do  the  thing  in  question.  Of 
course,  in  such  a  case,  the  agent  is  not  any  the  less 
liable  to  his  principal  for  any  financial  loss  covered 
by  the  law  of  agency. 

As  a  rule  the  sales  agent  is  given  no  discretion  as  to 
fixing  a  price,  but  is  guided  in  this  particular  by  his 
principaFs  instructions.  Usually  he  has  authority 
to  promise  deliveries  and  to  grant  credits,  according 
to  the  usages  of  the  business. 

5.  Classes  of  selling  agents, — There  are  two  distinct 
classes  of  sales  agents  as  well  as  minor  variations. 
The  first  class  consists  of  those  who  maintain  ware- 
houses, shipping  accommodations  and  administrative 
departments.  They  carry  complete  stocks  of  the 
manufacturer's  goods  and  ship  as  orders  are  received. 
They  bill  the  goods  and  in  some  instances  undertake 
the  collection  of  accounts  and  guarantee  payments. 
In  short,  they  assume  all  the  functions  of  a  trader. 
Such  an  arrangement  is  well  adapted  to  certain  lines, 
such  as  dry  goods  and  groceries,  in  which  shipment  to 
customers  on  short  notice  is  essential. 

The  other  and  more  numerous  class  of  sales  agents 
confine  their  activities  to  selling  alone,  the  deliveries 
and  collections  being  cared  for  by  the  manufacturer. 
They  sell  by  sample,  in  most  cases  accepting  orders 
subject  to  the  approval  of  their  principals.  They 
are  generally  limited  in  the  territory  they  cover  to 
a  state,  county  or  city. 


WHOLESALE  MIDDLEMEN  83 

6.  The  agent's  compensation. — The  usual  practice 
is  to  allow  the  selling  agent  a  commission  on  the  sales 
he  makes.  If  the  agent  guarantees  accounts,  his  com- 
mission is  of  course  higher  than  when  he  does  not 
assume  this  responsibility.  The  amount  of  commis- 
sion differs  in  different  lines  of  business.  Whatever 
it  is,  it  should  be  carefully  specified  in  the  contract. 
This  contract  should  also  make  provision  for  the  reim- 
bursement of  delivery  charges,  other  selling  expenses, 
advertising  and  any  other  outlays  which  the  agent 
may  be  called  upon  to  make. 

Obviously  the  type  and  amount  of  the  service  which 
these  agents  render  varies  greatly.  One  selling  agent 
in  the  hardware  trade,  for  instance,  represents  forty 
manufacturers,  and  gives  no  two  of  them  identical 
service.  For  some,  he  is  a  warehousing  sales  agent, 
while  for  others  he  stocks  no  goods.  Sometimes  he 
handles  a  line  in  only  a  part  of  the  territory.  Some- 
times he  collects  accounts,  in  other  cases  guarantees 
them.  He  prides  himself  on  being  able  to  serve  any 
manufacturer  in  the  way  the  latter  wishes  to  be  served. 

7.  Mill  agents. — The  factory  or  mill  agent  is  not 
an  agent  at  all,  in  the  strict  sense  of  the  term.  He 
is  a  principal,  who  purchases  outright  the  entire  out- 
put of  a  factory  or  mill.  A  jobber  in  the  same  lines 
buys  only  a  portion  of  such  output.  Commission 
merchants  often  take  charge  of  selling  the  entire  pro- 
duct of  a  mill,  but  do  not  themselves  make  any  invest- 
ment in  the  goods. 

The  manufacturer  finds  such  an  arrangement  ad- 


84*  MARKETING 

vantageous  because  it  gives  him  a  convenient  outlet 
for  everything  he  produces,  and  takes  all  selling  prob- 
lems off  his  hands.  To  be  sure  he  has  no  subsequent 
control  over  his  product  in  its  course  to  the  ultimate 
consumer.  It  is  sold  in  advance,  frequently  far  in 
advance,  and  the  manufacturer  does  not  get  the  benefit 
of  favorable  market  fluctuations.  On  the  other  hand, 
he  suffers  no  loss  on  unfavorable  fluctuations. 

8.  Factors,  commission  merchants  and  brokers, — 
The  law  describes  a  factor  as  one  who  receives  goods 
from  another  for  sale,  who  sells  these  goods  in  his 
own  name,  collects  payments  and  remits  the  proceeds 
to  the  principal.  In  business,  such  an  agent  is  usually 
called  a  commission  merchant.  The  legal  term,  fac- 
tor, is  retained  in  some  lines  of  business  and  is  inter- 
changeable with  commission  merchants.  The  law 
makes  distinction  between  factors  and  brokers.  The 
latter  do  not  have  possession  of  the  goods  they  sell, 
and  do  not  collect  the  amounts  due  upon  the  sales 
they  effect. 

Trade  usage  takes  little  account  of  these  legal  dis- 
tinctions. It  continues  to  call  a  man  a  commission 
merchant,  even  tho  he  never  sees  the  goods  he  sells, 
sometimes  even  when  he  does  not  sell  the  goods,  but 
merely  collects  on  behalf  of  the  principal.  Again, 
men  designated  in  trade  as  brokers  sometimes  carry 
stocks  of  goods,  sometimes  bill  in  their  own  name, 
and  sometimes  collect  for  the  principal.  As  has  been 
pointed  out,  a  name  has  ceased  to  signify  a  well-defined 
service. 


WHOLESALE  MIDDLEMEN  85 

9.  Functions  of  the  commission  merchant. — The 
primary  normal  function  of  the  commission  merchant 
is  to  sell  the  goods  of  another,  receiving  as  compen- 
sation for  this  service  a  commission  on  the  selling 
price.  Out  of  this  primary  function,  there  sometimes 
grows  a  subsidary  function  of  acting  as  banker  for 
the  principal.  This  second  service  is  sometimes  given 
alone.     Let  us  first  consider  selling. 

10.  Necessity  for  the  commission  merchant, — For 
certain  lines  of  raw  and  intermediate  products,  it  is 
not  easy  for  the  producers  to  find  a  market  indepen- 
dently. The  centers  of  demand  are  scattered  and 
prices  fluctuate  from  day  to  day,  even  from  hour  to 
hour.  Out  of  the  need  for  centralized  service  in  these 
lines  has  developed  a  type  of  wholesale  middleman 
who  receives  consignments  of  goods  from  producers 
and  sells  them  as  agent.  His  knowledge  of  the  mar- 
ket and  its  prices  enables  him,  as  a  rule,  to  make  better 
deals  than  his  principal  could.  This  man  is  the  com- 
mission merchant. 

The  lines  in  which  commission  merchants  are  most 
commonly  employed  include  textiles,  grains,  cotton 
and  chemicals.  Formerly,  a  large  percentage  of  farm 
produce  was  handled  in  this  way  but,  during  recent 
years,  commission  men  have  not  been  able  to  get 
enough  farm  produce  on  consignment  to  supply  their 
regular  trade,  and  so  have  been  forced  to  go  out  and 
buy  like  any  regular  jobber. 

Even  in  the  four  lines  mentioned,  commission  mer- 
chants are  coming  to  have  connections  outside  of  their 


86  MARKETING 

regular  business.  Many  white  goods  commission 
houses  trade  to  some  extent  on  their  own  account.  In 
the  chemical  business,  most  of  the  foreign  manufac- 
turers sell  thru  American  commission  houses,  but 
many  of  the  latter  own  their  own  chemical  factories 
and  their  own  warehouses.  There  are  few  grain  or 
textile  commission  men  who  have  not  a  connection 
with  elevators  or  warehouses. 

11.  Activities  and  compensation  of  commission 
merchants. — Some  commission  merchants  guarantee 
collections  on  their  sales,  and  are  known  as  del  credere 
commission  merchants. 

Unless  there  is  a  special  allowance  for  brokerage, 
the  commission  man  pays  all  selling  costs  out  of  his 
commission,  but  such  expenses  as  storage,  handling, 
and  insurance  of  the  goods  while  in  his  possession 
are  charged  to  the  principal  for  whom  he  acts.  He 
makes  collections  and  fixes  terms  and  prices  within 
the  limits  of  his  instructions.  In  all  cases,  he  is  bound 
to  obey  instructions  and,  like  any  other  agent,  is 
liable  for  any  damages  suffered  from  his  failure  to  do 
so.  He  can  depart  from  such  instructions  only  to 
protect  himself  from  loss  on  his  own  advances  or  dis- 
bursements, or  to  meet  some  other  emergency. 

12.  Commission  merchants  and  manufacturer's 
agent. — The  commission  merchant  differs  from  the 
manufacturer's  selling  agent  both  in  his  legal  status 
and  in  his  method  of  accounting.  The  manufacturer's 
agent  is,  as  his  name  indicates,  a  sales  agent,  working 
under  the  direct  orders  of  his  principal.     The  manu- 


WHOLESALE  MIDDLEMEN  87 

facturer  dictates  classes  and  terms  of  credit  and  fixes 
prices.  Within  the  scope  of  his  agency,  the  agent 
binds  the  manufacturer  absolutely,  but  does  not 
assume  any  individual  liability.  Goods  shipped  to 
him  on  consignment  remain  the  property  of  the  manu- 
facturer, who  must  bear  all  risks. 

The  commission  merchant,  on  the  other  hand,  is 
more  independent.  Altho  the  consignments  which 
he  receives  are  not  his  property,  nevertheless,  thru 
force  of  custom,  he  provides  for  storage  and  insurance, 
is  usually  given  wide  range  in  fixing  prices  and  terms, 
and  is  responsible  for  the  payment  of  customers' 
accounts. 

13.  Commission  contracts. — Many  commission 
houses  are  well  established,  and  their  methods  of  oper- 
ation are  well  known  to  the  trade.  In  order,  how- 
ever, to  avoid  misunderstandings,  it  is  always  de- 
sirable for  the  manufacturer  and  the  commission 
merchant  to  enter  into  a  definite  and  formal  con- 
tract. Such  a  contract  will  specify  the  rates  of  com- 
mission to  be  charged,  regulate  transportation  charges, 
storage  charges,  cartage,  insurance,  repacking  and 
handling,  and  determine  prices  and  terms  of  sales, 
terms  of  settlement,  the  guarantee  of  accounts  when 
that  is  given,  and  similar  matters. 

14.  Rates  of  commission, — Rates  of  commission 
necessarily  vary  greatly  with  different  lines  of  busi- 
ness and  even  with  different  houses  in  the  same  line. 
The  points  that  enter  into  the  calculation  are  the 
prestige  of  the  house,  whether  the  accounts  are  to  be 


88  MARKETING 

guaranteed,  whether  an  allowance  is  to  be  made  for 
brokerage,  and  whether  the  commission  house  must 
assume  all  storage  and  handling  charges.  Five  per 
cent  is  a  common  rate  of  commission  for  chemicals; 
as  much  as  ten  per  cent  is  sometimes  paid  in  certain 
textile  lines.  When  brokerage  is  allowed  for  ex- 
penses, the  commission  is  generally  only  two  or  three 
per  cent  because,  in  such  a  case,  it  constitutes  clear 
profit.  Extra  allowance  is  granted  for  storing,  in- 
suring and  otherwise  caring  for  the  goods  from  the 
time  they  are  shipped  until  the  time  they  are  deliv- 
ered to  the  retailer  or  consumer.  This  allowance  may 
be  no  small  item,  and  o^ten  equals  the  commission 
charge. 

15.  How  the  commission  merchant  aids  the  manu- 
facturer,— When  a  manufacturer  deals  thru  jobbers 
he  is  frequently  under  the  necessity  of  giving  them 
a  considerable  extension  of  credit,  and  in  this  way 
may  be  said  to  finance  the  jobber.  When  he  deals 
thru  a  commission  house,  it  is  often  because  he  desires 
the  latter  to  finance  him.  The  manufacturer  may  not 
have  sufficient  capital  of  his  own  to  do  business  on 
the  scale  he  desires  and  cannot  look  to  the  commercial 
banks  for  more  than  short  time  accommodation.  The 
commission  merchant,  on  the  other  hand,  will  not  only 
sell  his  goods,  but  also  in  order  to  get  the  goods  in 
quantity  at  a  desirable  price,  may  be  willing  to  advance 
him  the  capital  necessary  to  develop  his  business. 
When  such  an  arrangement  is  made  the  commission 
man's  interest  in  his  client  and  supervision  over  the 


WHOLESALE  MIDDLEMEN  89 

latter's  affairs  is  often  very  intimate.  He  will  fre- 
quently dominate  the  manufacturing  policy  and  be- 
come almost  a  partner  in  the  operations  of  the  factory. 

16.  Loans  and  advances, — The  terms  for  the  ar- 
rangement between  the  manufacturer  and  the  com- 
mission merchant  will  vary  with  circumstances.  Gen- 
erally the  commission  man  agrees  to  a  standing  loan 
on  which  interest  is  charged,  the  security  for  the  loan 
being  the  client's  tangible  assets.  There  may  be  also 
an  agreement  for  cash  advances  upon  sales  made. 
On  completion  of  the  sale  the  commission  merchant 
will  advance  from  60  to  80  per  cent  of  the  amount  of 
the  sale.  When  the  customer's  remittance  is  received, 
the  commission  merchant  deducts  the  amount  of  the 
advance  made  on  that  particular  bill  and  a  commission 
for  use  of  money  and  service  rendered.  The  balance 
is  turned  over  to  the  client. 

17.  The  hanking  function, — An  interesting  varia- 
tion of  tlie  commission  merchant's  service  obtains 
when  the  function  of  guaranteeing  and  collecting  ac- 
counts becomes  entirely  dissociated  from  that  of  sell- 
ing. In  some  cases  the  manufacturer  does  the  selling 
and  the  commission  house  acts  as  credit  and  collection 
manager.  Orders  on  credit  are  submitted  to  the  com- 
mission house,  and  if  approved  by  the  latter  the  goods 
are  shipped  by  the  manufacturer.  The  goods  are 
billed  thru  the  commission  house,  which  makes  all 
collections.  In  the  meantime  the  commission  mer- 
chant advances  to  the  manufacturer  an  agreed  per- 
centage of  the  selling  price  of  the  goods.     The  name 


90  MARKETING 

given  to  a  house  in  the  textile  line  which  does  business 
on  this  basis  exclusively  is  factor. 

It  is  clear  that  this  function,  tho  incident  to  the  sale 
of  goods,  is,  strictly  speaking,  a  banking  transaction. 
Cases  occur  m  which  this  work  is  actually  done  thru 
banking  firms. 

18.  The  broker, — Still  another  type  of  middleman 
remains  to  be  considered,  the  merchandise  broker. 
There  are  two  main  differences  between  the  broker 
and  the  commission  merchant.  The  broker  usually 
does  not  have  possession  of  the  merchandise,  and  he 
deals  in  the  name  of  his  principal ;  the  commission  mer- 
chant, on  the  contrary,  usually  does  have  possession  of 
the  property  under  a  consignment  title,  and  deals  in  his 
own  name  in  all  cases.  The  commission  merchant  uses 
a  regular  bill  of  sale  on  w^hich  his  own  name  appears ; 
the  broker  gives  a  memorandum  of  the  transaction, 
w^hile  his  principal  usually  does  the  actual  billing, 
and  pays  him  on  a  periodical,  usually  weekly,  account- 
ing. When  commission  houses  use  the  drop  shipment 
system  extensively,  and  carry  little  or  no  stock,  the 
distinction  between  them  and  brokers  becomes  very 
slight. 

19.  Ejotent  of  merchandise  brokerage, — Brokers 
are  most  commonly  found  in  lines  such  as  fruits,  cof- 
fee and  other  food  products,  both  bulk  and  packaged. 
Merchandise  brokerage  seems  to  be  on  the  increase 
where  it  performs  a  legitimate  service  in  selling  and 
is  not  merely  a  parasitical  development.  When  the 
broker,  as  is  frequently  the  case,  handles  the  entire 


WHOLESALE  MIDDLEMEN  91 

output  of  a  factory,  he  is  scarcely  distinguishable  from 
a  selling  agent.  Most  brokers  are  individuals  oper- 
ating on  their  own  account.  Their  stock  in  trade  is 
their  knowledge  of  the  market,  prices,  and  personal 
acquaintance  with  old  factors.  The  broker  is  vir- 
tually a  manufacturer's  salesman  working  unsuper- 
vised on  commission. 

As  a  rule,  a  broker  operates  in  a  much  larger  field 
and  closer  to  the  firing  line  than  any  other  form  of 
middleman  principal  and,  for  this  reason,  is  in  a  bet- 
ter position  to  make  a  general  survey  of  the  market. 
He  can,  therefore,  often  get  better  prices  and  make 
better  deals  for  his  principal  by  selling  sometimes  to 
jobbers  and  sometimes  to  retailers. 

20.  Broker's  contract, — Usually,  no  formal  con- 
tract between  manufacturer  and  merchandise  broker 
is  drawn  up,  since  it  is  understood  that  the  broker 
acts  as  an  agent  for  and  in  the  name  of  the  principal 
and  responsibility  is  limited  to  a  given  quantity  of 
goods,  or  period  of  time.  Ordinarily  the  broker  has 
no  authority  to  receive  payment  for  property  sold  by 
him,  and  if  payment  is  made  to  him  by  the  purchaser, 
it  is  at  the  purchaser's  risk,  unless  for  special  reasons 
authority  to  receive  such  payment  has  been  given,. 
The  principal  fixes  all  terms  and  prices,  and  makes 
all  collections. 

21.  Broker's  commission. — The  broker's  compensa- 
tion depends  on  the  line  of  trade  and  his  service. 
Many  brokers  specialize  in  certain  lines  of  merchan- 
dise and  do  not  handle  other  lines.     In  many  cases  the^ 

V  — 8 


92  MARKETING 

compensation  is  based  on  a  flat  rate  per  case  or  other 
unit;  in  other  cases  a  commission  is  paid.  The  varia- 
tions in  the  same  trade  are  often  wide.  The  usual 
brokerage  on  bulk  olives,  for  example,  is  ll/<>  per 
cent  and  on  bottled  olives  5  per  cent. 

22.  Broker's  organization  and  operating  method, 
— In  a  typical  merchandise  brokerage  organization 
there  is  a  broker  for  each  principal  line  and  a  few- 
clerks  and  bookkeepers  to  keep  track  of  the  commis- 
sions. Some  of  the  most  successful  brokers  operate 
alone  and  do  not  have  even  desk-room.  They  go 
back  and  forth  for  jobbing  houses  between  the  manu- 
facturers and  the  buyers,  looking  for  good  lots  to  offer 
and  likewise  good  purchase  needs  to  satisfy.  When 
a  buyer  authorizes  a  broker  to  bid  prices  to  a  manu- 
facturer, the  broker  does  so  at  once  by  telephone  or 
telegraph.  If  the  manufacturer  accepts  the  bid,  the 
broker  makes  out  a  memorandum  of  sales  as  an  agent 
and  then  a  claim  for  commission.  Once  this  is  done, 
he  has  no  further  connection  with  the  transaction. 
But  he  is  not  sure  of  his  commission  until  the  goods 
are  actually  delivered  and  paid  for,  cancelations  be- 
ing frequent.  Doubtless  by  going  to  law  he  would 
be  able  to  collect  his  commission  if  he  has  received 
a  bona-fide  order,  but  few  brokers  feel  that  it  is  wise 
to  do  so,  as  this  would  offend  the  manufacturer  and 
•cut  off  a  source  of  future  business  from  the  broker. 
They  take  these  disappointments  as  part  of  the  busi- 
ness. 


WHOLESALE  MIDDLEMEN  93 

REVIEW 

In  what  respects  does  the  selling  agent  differ  from  the  mill 
agent?  When  will  a  manufacturer  find  it  advantageous  to  em- 
ploy a  selling  agent? 

Make  a  similar  distinction  between  the  commission  merchant 
and  the  broker.  Under  what  circumstances  are  these  two  classes 
of  middlemen  almost  identical? 

What  financial  relation  often  exists  between  the  manufacturer 
and  his  commission  merchant? 

Are  the  numbers  of  middlemen,  such  as  commission  merchants, 
factors  and  brokers,  increasing?  Do  they  serve  a  necessary  and 
valuable  service? 


CHAPTER  VIII 

SELLING  TO  THE  RETAILER 

1.  Retailer's  problems  affect  the  manufacturer. — 
It  is  the  retailer  in  the  fields  under  survey  who  is 
closest  to  the  manufacturer's  real  market  of  ultimate 
consumers.  If  the  retailer  is  a  good  merchant,  the 
manufacturer's  goods  move  fast  and  his  profits  ac- 
cordingly. If  the  retailer  is  a  poor  tradesman,  the 
channel  to  the  public  becomes  choked.  It  is  one  of 
the  manufacturer's  greatest  problems  to  find  how  to 
cooperate  with  the  retailer  so  that  they  both  may 
give  better  service,  and  increase  their  business.  When 
there  is  a  lack  of  cooperation,  the  interests  of  both  suf- 
fer. 

2.  Channels  thru  which  retailer  is  reached, — The 
jnanufacturer  sells  to  the  retailer  either  directly,  or 
thru  the  agency  of  another  middleman.  Each  method 
has  its  advantages  and  disadvantages  and  neither  can 
be  made  to  fit  all  cases. 

3.  Need  for  warehouses  in  direct  selling, — In  sell- 
ing direct  to  the  retailer  the  manufacturer  must  nat- 
urally be  prepared  to  perform  the  necessary  jobbing 
functions.  He  must,  for  example,  provide  branch 
warehouses  in  the  various  territories  from  which 
dealers'  stocks  may  from  time  to  time  be  replenished, 

94 


SELLING  TO  THE  RETAILER  95 

because,  in  the  United  States,  distances  are  so  great 
from  factory  to  points  of  distribution  that,  as  a  rule, 
too  much  time  would  elapse  in  filling  orders  direct 
from  the  factory. 

4.  Difficulties  in  keeping  complete  stocks. — While 
the  manufacturer  can  render  very  satisfactory  service 
in  certain  lines  of  business,  the  nature  of  other  lines 
makes  it  impossible  for  him  to  do  it  as  efficiently  as 
does  the  jobber.  Take,  for  example,  the  matter  of 
stocking  the  neighborhood  grocery.  On  its  shelves 
are  found  upwards  of  300  or  400  different  brands  and 
kinds  of  goods  made  by  almost  as  many  different 
manufacturers.  The  goods  are  supplied  by  some 
three  or  four  jobbers.  Now,  imagine  these  jobbers 
suddenly  eliminated.  What  would  be  the  plight  of 
the  retailer?  How  can  he  keep  up  his  stocks?  He 
can  no  longer  give  a  lump  order  of  odds  and  ends  to 
the  jobber's  salesmen.  He  must  order  each  item  di- 
rect from  the  manufacturer  who  produces  it.  He 
must  see  a  representative  of  each  manufacturer  or 
write  a  letter  about  it.  The  demand  on  his  time  for 
doing  this  would  be  so  great  that  he  would  have  little 
time  for  selling.  It  can  only  be  avoided  by  an  elabor- 
ate and  expensive  system  of  stock  records  and  pur- 
chasing procedure. 

The  average  dealer  is  not  well  informed  as  to  the 
relative  selling  merits  of  competitive  lines.  The  job- 
ber has  the  information  and  is  enabled  to  advise  the 
retailer  and  assist  him  in  keeping  a  carefully  selected 
and  well-balanced  stock.     It  is  too  much  to  expect 


96  MARKETING 

that  the  salesman  of  a  manufacturer  would  advise 
a  retailer  to  stock  a  competitor's  goods  as  being  of 
higher  quality  than  his  own.  The  dealer  would  have 
to  find  out  for  himself. 

5.  Expensive  to  handle  small  orders. — In  many 
lines  it  does  not  pay  a  manufacturer  to  solicit  small 
orders.  The  salesman's  time  is  too  valuable  to  ad- 
mit of  his  covering  every  corner  of  his  territory  and 
the  expense  of  doing  so  is  out  of  all  proportion  to  the 
business  to  be  obtained.  Nor  does  it  help  much  if 
the  retailer  sends  his  orders  by  mail,  unsolicited  or 
solicited,  if  they  are  still  small,  because  in  handling, 
rehandling,  boxing,  carting,  checking,  and  billing,  all 
of  the  small  profit  may  leak  away. 

In  buying  direct,  a  dealer  would  either  have  to  look 
ahead  and  exercise  more  foresight  in  anticipating  his 
needs  than  the  average  retailer  does,  or  else  purchase 
in  large  quantities  and  pay  cash,  or  cash  in  ten  days, 
which  again,  is  foreign  to  the  average  retailer's  ex- 
perience and  inclination  or  ability.  Moreover,  if  he 
bought  in  larger  quantity  for  the  same  volume  of  de- 
mand, he  naturally  could  turn  the  larger  capital  in- 
vestment less  frequently  and  his  returns  on  the  capital 
would  be  proportionately  less.  In  other  words,  he 
would  actually  tend  to  become  less  successful,  which 
would  certainly  not  be  to  the  manufacturer's  interest. 

6.  Credit  arrangements  difficult, — A  merchant  who 
shows  ability  can  usually  get  part  of  his  stock  from  a 
jobber  on  "easy"  time  and  also  depend  on  the  jobber 
to  help  him  over  the  rough  spots  by  emergency  exten- 


SELLING  TO  THE  RETAILER  97 

sions  of  credit.  This  is  not  a  question  of  philanthropy 
but  of  good  business,  since  the  man  is  a  good  customer. 
iSIany  jobbers  are  glad  to  have  their  retailers  tied 
up  to  them  in  this  manner  since  the  retailers  will  con- 
fine their  purchases  as  much  as  possible  to  them.  On 
the  contrary,  most  manufacturers  are  not  in  a  position 
to  carry  many  accounts.  They  wish  to  get  their 
money  as  soon  as  possible  and  without  loss.  It  would 
be  a  difficult  matter  for  them  to  furnish  credit  facili- 
ties.  The  additional  clerical  expense  entailed  in 
keeping  track  of  credit  arrangements  with  a  large 
number  of  accounts  is  another  reason  why  direct  deal- 
ing between  manufacturer  and  retailer  in  many  lines 
is  rather  difficult  or  impossible. 

7.  Why  the  manufacturer  sells  direct. — There  is, 
nevertheless,  in  other  lines  a  constantly  increasing 
number  of  manufacturers  who  have  dispensed  with 
the  jobbers'  service  and  now  sell  direct.  This  is  due 
to  a  number  of  reasons  which  will  now  be  discussed. 

8.  Jobber  unable  to  give  exclusive  attention. — 
With  the  constant  increase  in  the  number  of  articles 
a  jobber  must  handle,  has  come  a  corresponding  in- 
crease in  the  number  of  lines.  The  recent  catalog 
of  a  wholesale  grocer  contains  over  6000  items,  divided 
among  724  different  kinds  of  goods.  On  the  list  were 
no  less  than  102  brands  of  coffee,  30  different  kinds 
of  coffee  substitutes,  84  makes  of  canned  beans  and 
75  kinds  of  cigars.  The  amount  of  real  salesmanship 
that  can  be  given  to  any  one  of  these  lines  is  obvi- 
ously limited.     It  is  impossible  for  the  jobber's  sales- 


98  MARKETING 

men  to  become  acquainted  with  the  merits  of  more 
tlian  a  few  lines.  The  manufacturer  who  wants  his 
goods  "pushed"  by  jobber's  salesmen  is  asking  the 
impossible  except  under  exceptional  circumstances 
which,  as  previously  noted,  he  must  himself  provide. 

9.  Jobber  indifferent  to  inanufacturer's  advertising, 
— The  national  advertiser  generally  takes  the  stand 
that  since  he  is  aiding  the  jobber  by  creating  consumer 
demand,  therefore  the  jobber  should  "get  behind 
him."  The  jobber  retorts  that  he  cannot  push  the 
line  of  one  manufacturer  without  being  unfair  to  the 
others.  He  says  further :  "I  tell  the  dealer  here  are 
many  different  kinds  of  goods.  They  are  all  good, 
or  I  should  not  be  handling  them.  Take  your 
choice."  The  national  advertiser  does  not  regard  this 
as  a  satisfactory  answer.  His  own  idea  is  that  the 
advertising  entitles  him  to  preferential  treatment. 

Some  jobbers,  as  previously  said,  are  openly  hostile 
to  manufacturers'  national  advertising.  They  con- 
tend that  the  profits  on  advertised  goods  are  too  small ; 
that  the  manufacturers'  advertising  makes  jobbing  a 
mere  machine ;  and  that  the  consumer  demand  for  ad- 
vertised goods  lessens  the  jobber's  influence  among 
retailers.  Unless  the  total  profit  secured  from  the 
handling  of  advertised  goods  really  is  too  low,  the  at- 
titude is  illogical.  As  a  consequence,  some  manu- 
facturers prefer  to  find  their  own  markets  rather 
than  to  spend  time  and  money  in  what  they  regard 
as  the  impossible  task  of  "lining  up." 

10.  Manufacturer  checks  up  advertising, — The  ad- 


SELLING  TO  THE  RETAILER  99 

vertising  manufacturer  must  know  where  his  goods 
are  consumed  in  order  to  direct  intelligently  both  his 
advertising  and  his  sales  campaigns.  But  jobbers 
can  give  him  little  or  no  help  in  this.  A  specialty- 
manufacturer  may  be  selling  seventy-five  Chicago 
grocery  jobbers.  They  sell  not  only  in  Chicago  but 
over  a  w^ide  surrounding  territory  and  he  cannot  tell 
from  their  total  sales  whether  his  goods  are  evenly 
distributed  or  only  in  spots.  His  figures  may  show  a 
steady  gain,  but  for  all  he  knows  Chicago  itself  may 
have  been  falling  off.  Suppose  he  suspects  that  that 
is  the  case  and  meditates  an  advertising  drive  in  the 
Chicago  newspapers.  He  wishes  first,  however,  to  be 
sure  of  the  fact.  The  jobbers  have  no  records  to 
show  him.  They  can  only  guess.  It  will  cost  a  good 
deal  of  time  and  money  to  get  much  in  the  way  of 
statistics  from  the  retailers.  He  has  to  content  him- 
self with  a  score  or  two  of  interviews  and  guesses. 

In  the  last  analysis  the  manufacturer  who  sells  only 
thru  jobbers  does  not  know  where  his  goods  are  con- 
sumed. Unless  the  jobbers  show  a  willingness  to 
keep  complete  records  of  all  their  shipments  to  the  re- 
tailers and  supply  this  information  to  the  manufac- 
turer, the  latter  is  greatly  handicapped  in  making  any 
appropriations  for  advertising.  This  is  one,  tho  not 
the  sole  reason  why  a  grocery  manufacturer  may  pre- 
fer to  deal  direct  with  the  retailers  in  thickly  settled 
sections  like  those  around  New  York,  in  New  England 
and  Chicago.  He  could  not  carry  the  accounts  of  all 
the  grocers  in  the  country  and  even  those  of  the  met- 


100  MARKETING 

ropolitan  area  are  more  or  less  of  a  nuisance,  but  he 
is  in  touch  with  these  important  markets  and  that  is 
something. 

11.  Jobbers  cut  the  price, — Many  manufacturers 
wished  to  name  prices  at  which  jobbers  shall  sell 
goods,  but  this  measure  did  not  meet  with  general  sup- 
port on  the  part  of  the  jobbers  even  before  the  policy 
of  enforced  price  maintenance  was  construed  by  the 
Supreme  Court  as  unlawful.  The  jobbers'  practice 
of  cutting  prices  is  unquestionably  one  of  those  which 
has  led  to  the  disorganization  of  the  field.  The  job- 
bers by  cutting  prices  have  helped  to  build  up  the  re- 
tail chains.  When  they  had  done  so,  the  chains 
turned  around  and  bought  direct  from  the  manufac- 
turers, thus  weakening  the  jobbers  and  forcing  them 
in  their  fight  for  existence  to  develop  still  more  their 
private  brands.  The  strong  chains  have  now  entered 
into  manufacturing  and  the  only  hope  of  the  little  in- 
dependent retailers  in  the  lines  where  this  condition 
prevails  must  lie  in  the  jobbers  and  manufacturers 
again  coming  together.  But  the  signs  at  this  time  are 
all  the  other  way. 

12.  Selling  direct. — Certain  classes  of  goods  are 
best  sold  thru  exclusive  agencies,  one  dealer  to  a  town. 
The  large  sales  made  by  one  dealer  with  an  exclusive 
agency  make  it  more  profitable  for  the  manufacturer 
to  ship  to  him  direct  than  to  ship  thru  the  jobber  in 
that  territory.  Moreover,  direct  selling  enables  the 
manufacturer  to  keep  in  closer  touch  with  his  product. 

13.  Complete  lines  now  handled  by  manufacturers. 


SELLING  TO  THE  RETAILER  101 

— The  policy  followed  by  some  manufacturers  in  mak- 
ing complete  lines  or  "families"  of  products  has  also 
tended  to  lessen  the  importance  of  the  jobber.  This 
policy,  which  is  rapidly  growing,  enables  dealers  to 
obtain  a  large  part  or  all  of  their  stock  direct  from 
one  manufacturer,  if  they  wish  to  do  so.  Under  this 
method,  the  sales  to  retailers  may  be  large  enough  tG 
justify  a  manufacturer  in  maintaining  a  force  of 
traveling  salesmen. 

Both  the  National  Biscuit  Company  and  the  Loose 
Wiles  Company  sell  dealers  a  complete  stock  of 
crackers  and  cakes  in  package  form  and  in  boxes. 

14.  Nature  of  commodities  may  demand  direct  sell- 
ing,— Goods  whose  selling  value  changes  rapidly,  like 
perishable  goods  or  some  of  those  with  a  style  or 
fashion  element,  must  be  marketed  quickly  or  the 
manufacturers  will  incur  a  loss.  In  order  to  guard 
against  having  their  products  spoil,  some  manufac- 
turers have  established  their  own  distributing  stations 
so  that  they  may  know  the  exact  condition  in  which 
their  goods  reach  the  retailer.  These  manufacturers 
also  try  to  get  the  retailers  to  buy  from  them  fre- 
quently and  in  small  quantities  so  that  the  goods  may 
always  be  fresh.  The  large  packing  houses  supply 
refrigerating  facilities  which  some  dealers  lack. 

It  must  not  be  supposed,  however,  that  jobbers  do 
not  handle  spoilable  goods.  Kellogg's  Toasted  Corn 
Flakes  is  a  notable  example  of  a  product  which  has 
always  been  marketed  thru  the  jobber.  The  Kellogg 
Company,  however,  makes  a  practice  of  overhauling 


102  MARKETING 

dealers'  stocks  at  intervals  and  replacing  all  old  stock 
with  new  goods. 

15.  Dense  population  aids  selling  direct. — The 
growing  density  of  population  is,  as  before  pointed 
out,  another  reason  for  direct  selling.  With  a  widely 
scattered  population  and  dealers  few  and  far  between 
the  manufacturer  did  not  care  to  undertake, to  sell  di- 
rect to  retailers  because  he  feared  the  cost.  The  job- 
ber was  his  most  economical  medium  of  distribution. 
With  the  growth  of  cities  providing  greater  po'ssibili- 
ties  for  large  markets,  manufacturers  have  often 
found  it  an  economy  to  maintain  local  warehouses  and 
send  their  salesmen  direct  to  retailers. 

REVIEW 

How  has  the  jobber  forced  the  manufacturer  to  open  up  direct 
relations  with  the  retailer? 

Under  what  circumstances  do  manufacturers  find  it  advan- 
tageous to  deal  directly  with  retailers? 

Why  do  small  retailers,  for  instance,  grocers,  ordinarily  prefer 
to  deal  thru  the  local  jobber? 

Why  do  manufacturers  of  clothes  usually  sell  direct? 


CHAPTER    IX 

SELLING  THRU  EXCLUSIVE  AGENCIES 

1.  Choice  of  means. — One  of  the  most  important 
problems  confronting  the  manufacturer  who  intends 
to  make  use  of  the  existing  trade  channels  is,  whether 
he  shall  sell  his  goods  ( 1 )  thru  one  exclusive  agency 
in  a  community;  (2)  thru  a  few  carefully  selected 
dealers  in  each  cit}"  on  a  limited  agency  system;  or 
(3)  thru  any  dealers  in  a  community  who  may  be  will- 
ing to  handle  his  product.  This  chapter  deals  with 
the  advantages  and  disadvantages  of  exclusive  agen- 
cies from  the  point  of  view  of  both  dealer  and 
manufacturer.  It  should  be  pointed  out,  by  way  of 
preface,  that  the  exclusive  agency  system  is  not 
adapted  to  the  sale  of  rapid-repeating  necessaries  and 
that  in  large  cities  the  territorial  unit  is  a  district  or 
neighborhood. 

2.  Legal  questions  involved, — In  one  kind  of  ex- 
clusive agency,  the  manufacturer  and  dealer  enter  into 
an  agreement  which  binds  the  manufacturer  not  to 
sell  thru  any  other  dealer  in  the  community,  and  binds 
the  dealer  to  give  his  best  attention  to  the  manufac- 
turer's goods.  In  another  kind  of  exclusive  agency 
there  is  a  further  agreement  on  the  part  of  the  dealer 
that  he  will  not  handle  any  competing  line  of  goods. 
There  is  no  legal  objection  to  the  first  kind  of  agency. 

103 


104  MARKETING 

No  one  can  take  from  the  manufacturer  the  right  to 
select  his  customers  and  sell  only  to  those  to  whom  he 
wants  to  sell.  With  respect  to  the  second  kind  of  ex- 
clusive agency,  however,  there  is  some  question.  The 
Clayton  Anti-Trust  Law,  passed  in  1914,  contained 
this  clause : 

It  shall  be  unlawful  for  any  person  ...  to  lease  or 
make  a  sale  or  contract  for  sale  of  goods  ...  on  the 
condition,  agreement,  or  understanding  that  the  lessee  or 
purchaser  thereof  shall  not  use  or  deal  in  the  goods  .  .  . 
of  a  competitor  or  competitors  of  the  lessor  or  seller, 
where  the  effect  of  such  lease,  sale,  or  contract  for  sale, 
or  such  condition,  agreement,  or  understanding  may  be 
to  substantially  lessen  competition  or  tend  to  create  a 
monopoly   in   any   line   of   commerce. 

This  clause  does  not  definitely  prohibit  the  agree- 
ments mentioned;  it  only  prohibits  them  when  the 
effect  "may  be  to  substantially  lessen  competition, 
etc."  Just  when  this  may  be,  no  one  knows.  Each 
situation  as  it  arises  must  be  decided  on  its  own  merits. 
The  wording  of  the  law  suggests  a  certain  public  atti- 
tude toward  so-called  binding  or  tying  contracts  which 
the  manufacturer  may  well  bear  in  mind. 

3.  Interests  of  the  dealers  and  manufacturers, — 
In  deciding  whether  or  not  to  sell  thru  exclusive 
agencies  the  manufacturer  too  often  considers  his  own 
point  of  view  alone.  He  fails  to  consider  the  attitude 
of  the  dealer.  The  arguments  for  and  against  exclu- 
sive agencies  from  the  standpoint  of  the  dealer  and 
from  that  of  the  manufacturer  merge ;  no  definite  line 
can  be  drawn  between  them. 


EXCLUSIVE  AGENCIES  105 

4.  Why  retailers  like  exclusive  agencies, — Many  re- 
tailers favor  exclusive  agencies  and  have  forced  manu- 
facturers against  their  will  to  grant  them.  Among 
the  advantages  which  an  exclusive  agency  gives  to  a 
retailer  are  price  maintenance,  the  benefit  of  advertis- 
ing, prestige,  new  trade  and  a  close  relation  with  the 
manufacturer. 

5.  Prices  maintained, — When  only  one  dealer  in  a 
community  handles  a  certain  line,  there  is  no  cut- 
price  competition  in  it.  So  disastrous  has  been  the 
price  slashing  on  many  nationally  advertised  goods 
that  many  dealers  refuse  to  handle  them  at  all  unless 
they  can  have  the  exclusive  sale,  and  so  make  sure  of 
a  living  profit.  This  is  particularly  true  of  the  drug 
business.  Cut-throat  competition  resulting  in  price- 
cutting  is  the  rule  in  this  business  in  many  cities;  the 
average  druggist,  therefore,  eagerly  accepts  an  ex- 
clusive agency  for  a  line  for  which  there  will  be  a  real 
consumer  demand. 

6.  Benefits  of  advertising. — When  a  dealer  has  the 
exclusive  sale  of  a  well-known  line,  he  knows  that  he 
alone  among  the  dealers  in  his  neighborhood  will  reap 
the  harvest  of  the  advertising.  This  is  agreeable  to 
him,  because  he  does  not  care  to  build  business  for  the 
"other  fellow."  The  same  reason  often  induces  him 
to  push  his  own  private  brands  instead  of  the  nation- 
ally advertised  goods  that  are  found  also  in  all  his 
competitors'  stores.  If  he  can  have  the  exclusive  sale 
of  a  well-known  line,  he  feels  that  as  far  as  his  town 
or  neighborhood  is  concerned,  that  line  becomes  his 


106  MARKETING 

own  exclusive  brand.  Furthermore,  the  dealer  who 
has  an  exclusive  agency  for  an  article  can  take  the 
fullest  advantage  of  the  manufacturer's  advertising  of 
it.  The  local  advertisements  that  appear  may  carry 
his  name.  The  national  advertisements  may  be  linked 
up  with  his  store  exclusively,  by  window  display,  by 
the  dealer's  own  local  advertising  and  by  a  variety  of 
other  methods.  Because  only  the  exclusive  agent 
gets  the  benefit  of  the  manufacturer's  activities,  he  ex- 
periences the  increased  ease  of  selling,  the  rapid  turn- 
over, and  the  lowered  selling  expense  that  are  charac- 
teristic of  all  well-advertised  lines. 

7.  Prestige, — Exclusive  agency  for  a  standard  ar- 
ticle gives  prestige  to  a  store.  A  merchant  likes  to 
handle  a  well-known  line  of  clothing,  shoes,  pianos,  or 
filing  cabinets.  It  permits  the  featuring  of  something 
exclusive  in  the  store's  advertising  and  window  dis- 
plays. Inasmuch  as  the  constant  effort  of  the  dealer 
is  to  give  distinction  to  his  establishment,  the  exclusive 
agency  idea  appeals  strongly  to  him. 

8.  New  trade, — Exclusive  agency  for  one  article 
will  bring  to  a  store  people  who  would  not  otherwise 
trade  there.  A  man  may  habitually  buy  his  cravats, 
collars,  and  underwear  at  one  store,  and  shop  around 
for  his  outer  clothing;  and  yet  if  some  one  clothing 
store  manages  to  attract  him  with  its  offering  of  na- 
tionally advertised  brands  it  has  a  good  chance  to  win 
his  permanent  patronage  in  the  other  lines  also. 

9.  Close  relations  with  manufacturer, — The  dealer 
having  an  exclusive  agency  usually  feels  that  the 


EXCLUSIVE  AGENCIES  lOT 

manufacturer  gives  more  careful  attention  to  his  or- 
ders, complaints  and  suggestions  and  in  general  values 
his  services  more  than  if  the  manufacturer  had  other 
dealers  in  the  community. 

10.  Opposition  of  dealers, — Despite  the  desire  of 
many  dealers  for  exclusive  lines,  the  exclusive  agency 
has  its  critics  in  the  retail  trade.  The  objections  are 
two.  One  is  directed  against  abuses  of  the  arrange- 
ment.    The  other  attacks  the  whole  idea. 

11.  Abuse  of  the  exclusive  agency  idea, — When  a 
retailer  admits  that  the  exclusive  agency  is  all  right 
in  principle  but  will  not  accept  it  in  any  given  case, 
it  is  usually  because  he  lacks  confidence  in  the  manu- 
facturers. The  exclusive  agency  is  sometimes  used 
by  a  manufacturer  to  introduce  his  goods  into  a  com- 
munity and  when  a  demand  for  these  has  been  created 
the  sales  privilege  is  extended  to  others.  The  orig- 
inal dealer  does  not  lose  the  right  to  sell  the  goods,  but 
he  loses  the  exclusive  right.  JNIany  dealers  believe 
that  this  injures  them — they  spend  time,  effort  and 
money  to  build  up  a  reputation  for  the  brand,  and 
then  a  large  part  of  the  fruits  of  that  work  go  to 
others.  And  they  lose  the  prestige  of  being  exclusive 
agents  in  their  communities. 

Not  all  manufacturers,  by  any  means,  use  the  ex- 
clusive agency  idea  simply  as  an  introductory  meas- 
ure. For  instance,  Dunlap  hats  have  been  sold 
strictly  on  the  exclusive  agency  basis  for  over  sixty 
years.  Many  other  manufacturers,  too,  have  con- 
sistently and  continually  followed  the  same  practice. 

V  — 9 


108  MARKETING 

Xevertheless,  the  practice  of  "breaking  into  the  mar- 
ket" thru  exclusive  agencies,  only  to  abandon  the  plan 
when  a  demand  has  been  established,  is  common  with 
manufacturers. 

12.  Manufacturer's  position. — Manufacturers  who 
have  done  this  say  it  does  not  hurt  the  original  dealer 
and  that  many  dealers  admit  it.  Brill  Brothers,  who 
for  some  years  had  the  exclusive  right  to  sell  Hole- 
proof Hosiery  in  New  York  City,  reported  an  actual 
increase  in  Holeproof  sales  after  140  other  dealers 
in  the  city  were  given  the  right  to  handle  the  goods. 
The  Mark  Cross  leather  company,  originally  operat- 
ing on  an  exclusive  agency  basis,  found  that  its  line 
was  growing  too  large  and  too  varied  for  one  dealer 
in  a  town  to  carry,  and  in  many  communities  began 
to  sell  to  several  stores.  Almost  without  exception 
the  former  exclusive  agencies  reported  increased  sales 
after  this  change.  The  explanation,  of  course,  is  that 
the  sales  and  advertising  power  of  a  number  of  stores 
shows  greater  results  when  combined  on  one  brand 
than  when  spread  over  several  and  that  similarly  each 
store  shows  greater  results. 

13.  Are  exclusive  agencies  taken  away? — It  is  also 
charged  that  frequently  manufacturers  transfer  agen- 
cies from  one  dealer  to  another,  and  in  other  cases 
threaten  to  do  so,  using  such  threat  as  a  means  of  in- 
ducing dealers  to  stock  more  goods  than  they  would 
otherwise  be  wilhng  to  purchase,  or  to  exert  unusual 
sale  effort.  Rather  than  run  the  risk  of  losing  part  of 
his  business,  or  being  subjected  to  possible  bullying 


EXCLUSIVE  AGENCIES  109 

on  the  part  of  the  manufacturer,  the  dealer  may  pre- 
fer to  use  his  time  and  effort  in  favor  of  a  private 
brand  which  cannot  be  taken  away  from  him. 

The  fear  of  the  dealers  is,  however,  not  well 
grounded,  since  few  manufacturers  have  been  guilty 
of  the  practice  charged.  There  is  little  danger  of  a 
dealer  losing  his  agency  if  he  lives  up  to  his  agree- 
ment. If  he  does  not  do  his  share,  if  he  dabbles  in 
many  competing  lines  and  if  he  does  not  really  put 
himself  strongly  behind  the  goods  for  which  he  has 
accepted  the  exclusive  agency,  he  should  expect  to  lose 
it ;  but  even  then  it  is  by  no  means  certain  that  he  will 
do  so,  since  most  manufacturers  would  rather  suffer 
inconvenience  and  loss  of  sale  in  individual  instances, 
than  take  drastic  action,  when  such  action  might  pre- 
sent itself  to  the  trade  in  an  unfavorable  light  and  cost 
the  manufacturer  many  times  the  original  loss.  The 
far-sighted  manufacturer  will  not  quarrel  with  his 
agents  unless  a  quarrel  is  forced  upon  him,  because 
he  has  too  much  at  stake. 

14.  Does  the  exclusive  agency  discourage  competi- 
tion? — Sometimes  a  dealer  opposes  the.  agency  idea 
because  he  thinks  it  is  fundamentally  wrong.  In  the 
latter  case  he  usually  argues  as  follows:  A  retailer 
must  meet  competition.  When  people  ask  for  goods, 
it  is  his  business  to  supply  them.  The  exclusive 
agency  idea  makes  it  impossible  for  any  one  dealer 
in  a  community  to  satisfy  all  the  demands  in  his  line. 
Furthermore,  the  inability  of  a  dealer  to  sell  some- 
thing requested  leads  him  to  substitute  something  else. 


110  MARKETING 

When  one  dealer  actively  pushes  a  line  for  which  he 
is  the  exclusive  agent,  his  competitors  will  find  some- 
thing similar  to  push  just  as  hard.  This  limits  the 
total  sales  of  the  line  handled  by  the  exclusive  agent. 
The  exclusive  agent  can  seldom  get  as  large  a 
volume  of  sales  on  a  given  article  as  he  might  if  all 
dealers  in  a  town  carried  it.  The  manager  of  Brill 
Brothers,  New  York,  illustrates  this  point  in  an  ar- 
ticle in  Printers'  Ink : 

If  we  alone  after  hammering  Holeproof  Hosiery  as 
hard  as  we  possibly  could  for  four  or  five  years  had  been 
able  to  build  up  the  Holeproof  business  in  New  York, 
which  we  were  doing,  it  was  reasonable  to  suppose  that 
100  or  150  energetic  retailers  plugging  and  pushing  Hole- 
proof Hosiery  would  surely  produce  better  and  quicker 
results  than  one  dealer  pushing  the  product  and  the  other 
99  or  149  pounding  it  because  they  did  not  carry  it.  It 
simply  meant  a  choice  between  having  150  stores  in  New 
York  in  which  a  man  or  woman  could  be  told  the  merits 
of  Holeproof  Hosiery,  or  only  one  store;  one  store  push- 
ing Holeproof  and  every  other  store  with  something  "just 
as    good." 

15.  Why  manufacturers  favor  exclusive  agencies. 
— Some  manufacturers,  as  has  been  pointed  out,  grant 
exclusive  agencies  because  retailers  demand  it ;  others, 
because  they  believe  it  is  the  best  way  to  sell  their 
goods.  The  single  connection  is  generally  held  to  be 
most  desirable  where  the  article  or  line  to  be  dis- 
tributed is  a  ^'shopping  hne,"  that  is,  one  that  is  pur- 
chased only  after  comparisons  made  in  several  stores; 
where  the  size  of  the  stock  calls  for  a  considerable 
investment  on  the  part  of  the  local  merchant;  where 


EXCLUSIVE  AGENCIES  111 

the  article  or  the  hne  needs  more  sales  attention  than 
would  be  given  without  special  inducement  as,  for 
example,  an  account  of  its  technical  nature;  where 
special  service  is  needed  to  install  it  or  put  it  into 
effective  operation;  where  price  maintenance  is  in- 
dispensable ;  where  it  is  difficult  to  introduce  the  article 
or  line  to  the  trade  in  general ;  and  where  it  is  not  ready 
for  advertising  or  there  is  no  money  to  advertise  it. 

16.  Shopping  lines, — If  goods  are  of  such  a  nature 
that  consumers  will  look  for  them  in  several  stores, 
exclusive  agency  may  be  a  good  thing.  This  is  true 
either  of  goods  in  which  the  style  element  plays  a  large 
part  (clothing,  hats  and  shoes,  for  example),  or  of 
goods  that  represent  a  large  outlay  of  money  (auto- 
mobiles, talking  machines,  farm  machinery).  When 
people  can  be  expected  to  give  much  thought  to  a  pur- 
chase and  to  look  carefully  into  the  merits  of  each 
possible  line,  there  are  many  obvious  advantages  in 
the  exclusive  agency  method  of  distribution. 

17.  Large  or  expensive  stock, — A  merchant  will 
not  be  expected  to  make  any  considerable  and  exclu- 
sive investment  in  any  one  manufacturer's  product 
unless  he  is  protected  against  competition,  or  given 
some  other  special  inducement.  The  manufacturers 
of  such  product  as  pianos,  automobiles,  farm  machin- 
ery, boots  and  shoes,  are  therefore  practically  re- 
stricted to  either  exclusive  agencies  or  to  their  own 
branches,  the  former  involving  less  capital  and  being 
more  economical,  except  in  the  cases  of  very  large  dis- 
tributors. 


lia  MARKETING 

18.  When  more  sales  attention  is  needed, — ^When 
the  public  must  be  educated  to  the  value  of  an  article, 
no  one  dealer  can  be  expected  to  put  much  time  upon 
it  unless  there  is  some  assurance  that  he  get  all  the 
business  he  creates.  Typewriters,  metal  furniture, 
heating  appliances,  and  automobiles  are  all  sold  thru 
exclusive  agencies,  not  only  because  large  stocks  are 
necessary,  but  also  because  a  large  investment  of  time, 
thought  and  effort  is  called  for. 

Another  class  of  articles  is  often  sold  on  an  exclu- 
sive agency  or  a  limited  agency  basis  in  order  to  assure 
such  rapid  sales  as  will  maintain  quality.  Huyler's 
and  Whitman's  candies,  for  instance,  are  sold  in  this 
way.  The  manufacturers  realize  that  the  candy  must 
be  fresh  when  it  reaches  the  consumer,  and  there  could 
be  no  certainty  that  it  would  be  fresh  if  all  dealers  in 
a  city  were  allow^ed  to  handle  it  indiscriminately,  and 
no  one  representative  dealer  in  a  neighborhood  had 
any  special  inducement  to  cooperate  with  the  manu- 
facturers in  this  regard. 

19.  Installation,  operation,  service, — Articles  that 
have  to  be  installed  or  set  up,  hke  ranges,  furnaces, 
boilers  and  expensive  fixtures  or  repaired,  like  auto- 
mobiles, are  generally  sold  either  thru  the  branch  or 
the  single  agency  connection.  Obviously  no  retailer 
would  take  the  time  to  acquaint  himself  with  all  the 
details  of  construction,  installation,  operation  and  re- 
pair unless  he  were  guaranteed  some  business,  nor 
actively  push  it  unless  he  was  guaranteed  all  of  it  in 
his  community. 


EXCLUSIVE  AGENCIES  113 

20.  Control  of  price. — The  exclusive  agency  is  one 
of  the  best  ways  of  controUing  the  re-sale  price.  Sell- 
ing to  only  one  dealer  in  a  community  means  entire 
freedom  from  the  troubles  that  come  to  an  advertised 
line  of  goods  when  competing  dealers  use  it  as  a  price 
leader. 

21.  Value  in  introducing  goods, — The  exclusive 
agency  method  sometimes  appears  to  be  the  only  pos- 
sible way  of  opening  new  territory.  Dealers  are  gen- 
erally averse  to  taking  on  an  untried  line;  often  the 
only  way  of  getting  any  distribution  at  all  is  to  offer 
an  exclusive  agency  to  one  dealer  in  a  community. 

22.  Unadvertised  goods. — An  exclusive  agency  is 
the  logical  way,  in  many  cases,  to  sell  unadvertised 
goods,  because  it  enlists  the  strong  selling  activity  of  at 
least  one  dealer  in  a  community.  Ordinarily  the 
dealer  prefers  a  nationally  well-known,  advertised  line 
which  will  bring  prestige  to  his  store,  but  his  reluc- 
tance may  be  overcome  in  various  ways.  A  larger 
profit  than  he  can  get  on  some  other  line  may  prove 
attractive,  if  he  thinks  he  can  sell  the  line.  The  line 
may  be  well  put  up  and  give  promise  of  success.  He 
may  carry  it  for  a  year  or  so  without  advertising  on 
the  promise  or  with  the  understanding  that  advertis- 
ing is  to  run  as  soon  as  a  satisfactory  distribution  has 
been  obtained.  Lastly,  all  the  leading  lines  of  a  kind 
may  be  distributed  thru  agencies  and  other  live  deal- 
ers may  be  glad  of  a  chance  to  have  an  individual  line 
of  their  own,  even  if  not  advertised  at  the  time. 

23.  Dealers  give  active  support. — It  is  much  easier 


114  MARKETING 

to  get  the  active  support  of  one  dealer  who  has  an 
exclusive  agency  than  to  get  the  active  support  of  all 
dealers  when  all  handle  the  line.  The  exclusive 
agent  is  glad  to  get  and  to  use  window  displays,  store 
signs,  and  other  forms  of  advertising  matter.  Fur- 
thermore, the  manufacturer  can  keep  in  close  touch 
with  the  exclusive  agent  and  render  him  real  sales 
service  of  a  personal  nature. 

24.  When  manufacturers  oppose  the  idea. — The 
majority  of  manufacturers,  however,  find  that  general 
distribution  produces  larger  volume  of  sales  than  re- 
stricted distribution.  As  we  have  seen,  this  is  un- 
questionably true  in  many  lines.  Convenience  goods 
should  be  distributed  as  widely  as  possible.  This  in- 
cludes many  small  articles  in  the  grocery  line,  dry- 
goods,  men's  clothing,  druggests'  sundries,  toilet 
articles,  shelf  hardware,  tobacco,  etc.  It  is  not  con- 
ceivable, for  instance,  that  Campbell's  soups  could 
maintain  their  present  large  sales  on  an  exclusive 
agency  basis.  As  it  has  been  put,  "exclusive  articles 
require  an  exclusive  agency,  and  an  article  of  general 
use,  with  nothing  exclusive  in  its  nature  of  appeal,  re- 
quires general  distribution ;  an  exclusive  agency  for  an 
article  of  general  demand  is  a  very  expensive  thing  for 
the  manufacturer,  because  it  invites  substitution." 

Since  the  object  of  advertising  goods  is  to  get  them 
out  of  the  unknown,  little  known  or  "shopping"  class 
and  make  of  them,  if  not  always  strictly  "conven- 
ience" goods,  yet  goods  whose  convenience  qualities 


EXCLUSIVE  AGENCIES  115 

shall  be  thoroly  known  and  appreciated,  such  adver- 
tised goods  should  obviously  have  as  wide  a  distribu- 
tion as  practicable.  Extensive  advertising  of  con- 
venience goods  will  be  largely  wasted  if  consumers 
cannot  readily  find  stores  that  carry  the  articles. 

25.  Desire  for  greater  sales, — Most  manufacturers, 
and  many  dealers,  believe  that  an  article  that  is  backed 
by  the  united  selling  effort  of  a  large  number  of 
dealers,  or  even  passively  offered  for  sale  by  them, 
will  show  a  larger  volume  of  sales  than  if  it  were  in 
only  one  store,  despite  the  activity  of  the  one  dealer 
in  its  behalf. 

26.  Do  eocclusive  agents  always  push  goods? — The 
selection  of  agencies  is  a  matter  of  the  first  importance. 
If  the  manufacturer  is  in  a  position  to  do  so,  he  should 
make  careful  inquiries  as  to  the  ability  and  reliability 
of  the  connections  he  proposes.  Some  manufacturers 
send  out  their  sales  managers  or  most  experienced 
salesmen  to  open  agencies  in  the  larger  communities 
and  accept  their  recommendations  only  after  it  is  evi- 
dent that  a  thoro  local  investigation  has  been  made. 
Everything  depends,  of  course,  upon  the  character 
of  the  agency,  the  amount  of  business  to  be  obtained 
and  the  importance  that  the  connections  may  assume. 

27.  Extent  of  exclusive  agencies, — Hardware 
dealers  are  generally  glad  to  accept  exclusive  agen- 
cies, even  tho  they  know  that  most  of  the  agencies  will 
be  extended  as  soon  as  a  demand  for  the  goods  has 
been  created,  but  few  hardware  manufacturers  grant 


116  MARKETING 

agencies  of  this  sort.  In  the  grocery  line,  the  ex- 
clusive agency  is  seldom  found.  Buyers  do  not  shop 
from  one  grocery  store  to  another ;  an  article  must  be 
in  the  customary  trading  place,  or  it  is  not  purchased. 
Among  drug  stores  there  are  many  exclusive  agencies, 
ranging  from  the  exclusive  agency  for  a  single  tooth 
powder  to  one  for  a  complete  line  like  that  of  the 
New  York  and  London  Drug  Company  (Nyal 
Goods).  In  men's  clothing,  the  exclusive  agency  is 
often  the  logical  thing,  because  men  will  go  out  of 
their  way  to  find  an  advertised  article  that  has  caught 
their  fancy.  Exclusive  agencies  are  becoming  more 
common  in  the  furniture  business,  altho  in  this  busi- 
ness manufacturer's  brands  have  until  recently  been 
comparatively  little  used. 

28.  Dealers  versus  manufacturers, — With  many 
exceptions,  it  may  be  stated  that  retailers  generally 
are  inclined  to  favor  exclusive  agencies,  while  manu- 
facturers are  inclined  to  refuse  them.  The  ad- 
vantages seem  to  be  more  on  the  dealer's  side  than  on 
the  manufacturer's.  The  tendency  is  away  from  ex- 
clusive agencies.  The  increasing  use  of  national  ad- 
vertising is  bringing  manufacturers  to  realize  the  ad- 
vantages of  the  widespread  distribution  which  enables 
readers  to  find  advertised  goods  easily.  The  growing 
interest  of  dealers  in  advertised  goods  is  leading  them 
to  recognize  that  general  selling  effort  behind  a  line 
means  maximum  demand  for  it  and  maximum  sales 
for  everybody. 


EXCLUSIVE  AGENCIES  117 

REVIEW 

What  legal  limitation  is  put  upon  agreements  which  may 
be  made  between  manufacturers   and  exclusive  agents? 

What  kinds  of  goods  may  be  distributed  most  successfully 
thru  exclusive  agencies  ? 

What  is  your  opinion  as  to  the  advantages  or  disadvantages 
of  the  exclusive  agency?      Can  you  defend  your  opinion? 

Should  a  manufacturer  use  the  exclusive  agency  to  introduce 
new  goods  into  the  market,  and  then  abandon  the  plan  when  a 
sufficient  demand  has  been  established? 


CHAPTER    X 

INFLUENCING  RETAIL  SALES 

1.  What  national  advertising  is. — There  is  prob- 
ably no  more  effective  way  for  a  manufacturer  to  help 
the  retailer  "move"  his  goods  than  thru  national  ad- 
vertising. No  other  method  or  auxiliary  of  selling 
has  developed  faster  and  none  gives  greater  promise 
of  continued  development. 

By  "national  advertising"  is  meant  advertising  in 
a  national  as  distinguished  from  a  local  way.  The 
purpose,  direct  or  indirect,  is  to  provide  a  demand  for 
the  advertiser's  goods,  which  may  be  sold  thru  stores, 
agencies  or  by  mail.  National  advertisers  are,  nearly 
all  producers,  tho  some  are  jobbers  and  a  few,  like 
the  large  mail-order  houses,  are  retailers.  For  this 
reason  most  of  the  goods  advertised  are  trade-marked 
or  "national"  brands,  so  called  to  discriminate  them 
from  the  private  brands  of  jobber  and  retailer  which 
have  only  sectional  or  local  distribution.  Most  na- 
tional advertising  is  done  thru  the  magazines  of  na- 
tional circulation,  but  the  claims  of  some  of  the  news- 
papers of  New  York  City,  the  outdoor  advertising 
there,  particularly  the  electric  signs  of  the  "Great 
White  Way,"  as  well  as  the  outdoor  advertising  at 
Atlantic  City  to  be,  in  eff'ect,  "national  mediums," 

118 


INFLUENCING  RETAIL  SALES  119 

can  not  be  denied.  They  have  far  more  than  a  local 
"circulation."  People  resort  to  New  York  and  At- 
lantic City  from  all  over  the  country  and  carry  back 
the  impressions  made  by  the  advertiser's  messages. 
The  same  is  true  to  a  different  extent  of  other  large 
centers. 

2.  Manufacturers'  claims  for  national  advertising, 
— Manufacturers  who  are  national  advertisers  and 
sell  thru  dealers  expect  "dealer  cooperation."  They 
contend  that  in  selling  their  goods  the  dealer  benefits 
himself  more  than  he  would  by  selling  unbranded 
or  unadvertised — "unknown" — goods.  He  secures 
more  profit,  the  advertiser  says,  and  the  consumer  gets 
better  goods  and  is  better  satisfied  and  business  for 
all  is  more  stable  and  progressive.  Let  us  consider 
these  contentions. 

3.  Claim  of  quality. — jNIanufacturers  assert  that 
nationally  advertised  goods  have  established  a  reputa- 
tion for  quality.  Advertising,  they  argue,  increases 
sales  and  reduces  selling  costs.  Large  sales  also  mean 
a  large-scale  business  which  employs  the  best  ma- 
terials, the  highest  constructive  skill  and  the  most 
sanitary  methods,  to  say  nothing  of  the  ablest  execu- 
tives and  the  latest  types  of  machines.  The  very  fact 
that  advertised  goods  are  preferred  by  the  public  after 
it  has  had  the  fullest  opportunity  to  make  compari- 
sons, as  it  is  constantly  invited  to  do,  is,  according  to 
the  advertisers,  another  proof  of  quality  in  their  goods. 
Nothing,  they  say,  will  more  quickly  kill  off  inferior 
goods  than  to  bring  them  into  the  limelight  of  publi- 


120  MARKETING 

city  thru  advertising.  The  conclusion  is  that  the 
goods  that  survive  this  test  must  be  goods  the  pubhc 
actually  wants. 

The  consumer  again  has  confidence  in  nationally  ad- 
vertised goods.  Past  experience  with  them  has  led 
him  to  know  what  to  expect.  He  can  identify  them. 
Their  quality,  whatever  it  is,  is  invariable.  He  buys 
them  quickly,  conveniently  and  confidently  by  name. 
He  is  spared  any  trouble  of  investigation.  He  can 
send  a  child  to  buy  them,  or  can  order  them  by  tele- 
phone and  be  sure  of  satisfaction.  If,  for  some  ex- 
ceptional reason,  the  goods  turn  out  to  be  unsatis- 
factory, the  dealer,  acting  for  the  manufacturers, 
will  replace  them  with  goods  that  are  satisfactory. 
The  manufacturer  is  forced  to  do  this  because  of  his 
branding  and  advertising.  The  good-will  of  the 
dealer  and  dealer's  customer  is  his  most  precious  as- 
sets. On  them  the  future  of  his  business  is  built. 
Ease  of  identification  thru  the  trade-mark  and  effec- 
tive advertising  put  the  manufacturer's  prosperity  in 
the  hands  of  the  public.  Wouldn't  he  be  foolish,  the 
manufacturer  asks,  if  he  did  not  give  the  public 
the  best  he  is  capable  of  offering? 

Still  another  proof  of  quality  in  trade-marked  and 
advertised  brands  is  that  the  public  follows  them  with- 
out regard  to  the  store  itself.  A  person  who  is  ac- 
customed to  buying  a  given  brand  of  clothing  does 
not  hesitate  to  deal  with  a  store  previously  unknown 
to  him  that  sells  the  same  clothing.  The  handling 
of  well-known  goods  will  often  establish  a  new  store's 


INFLUENCING  RETAIL  SALES  121 

reputation  overnight.     On  this  subject  a  trade  paper 
has  said: 

The  retailer  who  ignores  the  powerful  influence  of  ad- 
vertising is  completely  out  of  tune  with  the  times.  That 
advertising  has  brought  about  a  stable  condition  in  buy- 
ing and  selling  is  evident  at  every  turn.  Whether  it  be 
an  incubator,  a  thresher,  a  breakfast  food,  a  collar  or  a 
cigar — people  want  to  buy  and  duplicate  their  buying  by 
name.     They   don't   want   nameless    unknowns. 

A  "nameless  unknown"  may  have  all  the  quality  of 
an  advertised  brand  but  how  can  we  know  it?  How 
can  we  tell  if  it  will  be  tw^ice  alike?  How  can  we 
trust  it? 

4.  Value  in  manufacturer's  name, — Nationally  ad- 
vertised lines  undoubtedly  confer  prestige  on  the  re- 
tailer who  handles  them  and  are  largely  sought  by  the 
wideawake  merchant.  They  provide  a  sort  of  ready- 
made  good-will  in  advance  for  him,  which  he  could 
not  otherwise  get  except  at  the  expense  of  weeks  and 
months  of  personal  effort.  The  trade  paper,  Men's 
Wear,  publishes  an  appreciation  from  a  retailer  of 
the  value  of  a  manufacturer's  name  : 

Three  years  ago,  (says  the  retailer),  I  sold  $700,000 
annually.  Today  I  am  ^selhng  $1,000,000.  Part  of  this, 
not  all  of  it,  is  due  to  the  fact  that  I  sell  and  advertise 
Blank's  clothing.  My  name  on  my  store  in  my  town  is 
worth  a  lot  more  than  theirs;  I  could  sell  it  for  $250,000. 
But  their  name  on  their  clothes  is  worth  a  lot  more  than 
mine.  My  customers  know  that  I  do  not  make  clothes, 
and  the  name  of  Blank  on  the  clothes  answers  every  ques- 
tion any  man  might  be  inclined  to  ask.  The  combination 
of  my  name  on  my  store  and  their  name  on  my  clothes  in 
my   town   cannot  be  beat. 


122  MARKETING 

5.  Increase  in  sales, — Goods  which  are  advertised 
bring  more  sales  than  goods  which  are  not.  People 
are  drawn  to  a  store  not  only  by  the  manufacturer's 
advertisements,  but  by  those  of  the  dealer  in  connec- 
tion with  it.  The  strength  of  the  double  appeal  is 
readily  apparent  w^here  a  contrast  is  made  with 
another  store  that  advertises  only  its  own  service. 
Suppose  such  a  case.  Assume  two  clothing  stores  in 
a  town,  in  the  same  line  of  business,  are  both  compe- 
tently managed,  equally  prominent  and  equally  pros- 
perous, and  neither  featuring  any  nationally  adver- 
tised lines.  Now  let  the  storekeeper  of  one  change 
its  policy  and  stock  a  line  of  nationally  advertised 
clothing.  To  his  own  local  reputation  it  adds  the  na- 
tional prestige  of  the  manufacturer  and  has  it  work- 
ing for  him  locally  thru  the  local  newspapers.  He 
has  the  help  of  the  manufacturer  in  solving  his  sales 
problems.  Every  month  hundreds  of  people  in  town 
see  advertised  in  the  magazines  the  goods  he  carries. 
Once  or  twice  a  week  they  see  the  local  advertising, 
as  well  as  his  window  trims  and  perhaps  window  dis- 
play too.  At  the  end  of  six  months,  w^hich  store 
ought  to  have  the  greater  trade  ? 

6.  Decrease  in  selling  costs. — Nationally  advertised 
goods  have  canvassed  the  consumer  in  advance,  so  that 
when  he  enters  the  store  little  remains  to  be  done  by 
the  salesman.  For  this  reason  such  goods  are  sold 
more  easily  and  quickly  than  goods  which  have  not 
been  advertised  and  with  which  the  consumer  is  unfa- 
miliar.    The  customer  who  asks  for  a  trade-marked 


INFLUENCING  RETAIL  SALES  123 

razor  or  pair  of  shoes,  who  calls  for  a  breakfast  food 
by  name,  who  is  in  the  habit  of  purchasing  a  hundred 
and  one  things  in  the  same  way,  is  easy  to  wait  upon. 
He  knows  what  he  wants  and  the  goods  have  only 
to  be  wrapped  up  and  given  to  him  without  a  long 
explanation  or  argument  on  the  part  of  the  clerk. 
Well-known  standard  goods  sell  with  an  expenditure 
of  less  time  and  therefore  less  expense  than  are  re- 
quired by  unknown  brands.  In  this  connection  The 
Retailers'  Men's  Apparel  Magazine  says: 

Retailing  of  advertised  goods  is  frictionless.  The 
advertising  brands  are  called  for  by  name — £here  is  no 
dickering,  no  uncertainty  to  buyer  or  seller;  the  sale  is 
closed  quickly.  Additional  profit  in  advertised  goods 
lies  in  the  time  saved  in  waiting  on  customers. 

7.  More  frequent  turnovers, — Because  of  this  more 
rapid  sale,  goods  nationally  advertised  permit  of  a 
more  rapid  turnover  of  the  retailer's  capital  and  hence 
larger  aggregate  profits  than  do  unbranded  or  pri- 
vately branded  goods,  even  when  the  profit  on  each 
sale  may  be  less.  A  retail  dealer,  for  example,  sells 
at  ten  cents  each  two  similar  articles,  one  of  which 
is  nationally  advertised  and  the  other  not.  On  the 
advertised  article  he  makes  a  gross  pirofit  of  two  and 
one-half  cents ;  on  the  other,  a  gross  profit  of  five  cents. 
The  advantage  to  the  dealer  would  seem  to  lie  with 
the  latter  article.  But  on  account  of  the  demand  cre- 
ated by  the  advertising,  the  dealer  sells  one  hundred 
pieces  of  the  advertised  article  in  the  same  length  of 
time  it  takes  him  to  sell  only  twenty-five  pieces  of  the 

V  — 10 


124  MARKETING 

unadvertised  one.  This  would  give  him  an  aggregate 
gross  profit  on  the  advertised  article  of  $2.50  as 
against  only  $1.25  on  the  unadvertised.  brand. 
Moreover,  it  is  probable  that  the  four  times  as  many- 
people  who  bought  the  advertised  article  bought  four 
times  as  much  in  other  goods  in  the  store  as  did  those 
who  bought  the  unadvertised  article.  That  is  a  very 
important  consideration. 

A  further  advantage  to  the  retailer  is  to  be  derived 
from  the  handling  of  nationally  advertised  goods. 
Being  more  staple  than  others,  they  do  not  usually 
have  to  be  closed  out  at  the  end  of  the  season  at  a 
loss.  If  the  dealer  is  overstocked,  he  need  make  only 
a  slight  reduction  in  the  usual  selling  price  to  insure 
the  goods  moving  quickly.  The  manufacturer,  how- 
ever, wishing  to  avoid  giving  any  occasion  for  tamper- 
ing with  the  retail  price  of  his  goods  and  so  possibly 
disorganizing  his  market,  uses  every  precaution  to 
avoid  giving  the  dealer  more  than  he  can  conveniently 
sell. 

8.  Manufacturers  provide  selling  aids, — The  aver- 
age retailer  has  much  to  learn  about  advertising. 
Every  progressive  merchant,  however,' sees  evidences 
all  about  him  of  its  power.  He  is,  therefore,  willing 
to  accept  any  opportunity  that  does  not  conflict  with 
his  interests  to  make  use  of  this  power  for  his  own 
profit.  This  willingness  the  manufacturer  tries  to 
meet  half  way  with  an  advertising  and  selling  service. 
He  furnishes  the  dealer  with  many  kinds  of  "dealer 


INFLUENCING  RETAIL  SALES  125 

helps,"  including  store  and  window  cards,  hangers  and 
posters,  inside  and  outside  signs,  store  and  counter 
fixtures,  advertising  novelties,  cuts  of  goods,  electro- 
types for  complete  advertisements,  street-car  cards, 
window  displays,  form  letters  for  the  dealer's  cus- 
tomers, booklets  and  other  advertising  literature.  He 
helps  the  dealer  turn  his  weak  advertisements  into 
"pulling  copy"  and  he  supplies  him  with  many  sug- 
gestions for  advertisements  that  cover  not  only  the 
manufacturer's  goods  or  line,  but  many  other  things 
the  dealer  desires  to  push. 

9.  Opposition  to  national  advertising. — Opinion  is 
by  no  means  unanimous  as  to  the  merits  of  national 
advertising.  Many  manufacturers  prefer  to  sell  their 
goods  unbranded,  or  if  they  do  brand  them,  to  sell 
them  unadvertised.  Opposition  has  been  evinced  for 
a  number  of  reasons. 

10.  National  advertising  does  not  confer  quality, 
— Some  opponents  say  that  national  advertising  is  no 
proof  of  quality  in  the  goods  and  that  brands  which 
were  originally  of  high  grade  are  often  allowed  to  de- 
teriorate after  the  public  has  become  famihar  with 
them.  This  criticism  may  have  been  justified  once 
upon  a  time  before  the  nature  of  advertising  was  real- 
ized. No  doubt  there  are  still  new  advertisers  who 
believe  that  it  is  good  policy  to  build  up  a  demand  and 
good-will  for  their  goods  thru  pubhcity  and  then  kill 
both  by  cheapening  the  goods.  But  we  would  not 
find  that  the  case  with  any  of  the  old  advertisers,  or 


126  MARKETING 

with  any  of  the  important  advertisers,  old  or  new. 
Advertising,  with  them,  is  investment  and  they  would 
not  dream  of  destroying  the  basis  of  it. 

It  is  asserted  that  many  unadvertised  goods  are 
as  high  in  quality  and  as  well  known  as  those  which 
are  advertised.  This  may  be  conceded  without  ques- 
tion; advertised  goods  have  no  rnonopoly  on  either 
quality  or  public  favor.  All  that  advertising  can  do 
with  reference  to  the  quality  of  the  goods  is  to  cause 
a  more  general  appreciation  of  it,  if  it  is  there,  and 
force  the  advertiser  to  put  it  there  if  he  has  not  al- 
ready done  so.  Quality  is  the  first  and  best  adver- 
tisement. Branding  is  the  next.  If  goods  have  su- 
preme quality,  they  will  make  their  way  anywhere. 
But  they  will  not  without  the  identification  that  brand- 
ing gives.  All  other  advertising  is  merely  the  intensi- 
fication, amplification  and  extension  of  the  brand. 

11.  Name  on  the  goods, — Many  merchants  profess 
to  be  doubtful  as  to  whether  the  manufacturer's  name 
on  goods  has  any  special  value.  They  affect  to  believe 
that  their  own  names  are  worth  more  to  the  local  public 
than  the  names  of  the  manufacturers.  In  the  past 
most  large  retail  stores  have  used  only  their  own 
private  brands  and  have  refused  to  push  the  so-called 
standard  ones.  Where  stores  follow  the  policy  of 
"satisfaction  or  money  back,"  the  name  of  the  store 
is  sufficient  guarantee  of  quality.  Over  a  long  period 
these  stores  have  established  reputations  in  their  com- 
munities. But  to  a  new  customer  who  knows  noth- 
ing about  the  stores  such  a  guarantee  is  not  as  potent 


INFLUENCING  RETAIL  SALES  127 

as  that  back  of  a  nationally  advertised  product  with 
which  he  is  thoroly  familiar.  It  does  not  mean  any 
more  and  it  may  mean  far  le^s.  In  appealing,  there- 
fore, to  transients  and  to  new  customers,  the  stores 
which  carry  nationally  advertised  goods  have  a  decided 
advantage.  And  this  is  an  argument  for  the  manu- 
facturer. 

12.  Influence  of  national  advertising, — Critics  of 
national  advertising  say  that  its  effectiveness  is  over- 
estimated. They  charge  that  relatively  few  people 
read  the  advertising  in  the  general  magazines,  and 
that  the  creation  of  a  demand  thru  this  source  is 
largely  a  fiction  of  the  advertisers  and  others  directly 
interested  in  influencing  the  dealer,  who,  they  say, 
really  does  the  work  of  selling.  As  against  this 
statement,  it  is  only  necessary  to  point  out  the  sub- 
stantial results  obtained  in  the  same  classes  of 
mediums  by  mail-order  advertising.  A  large  pro- 
portion of  national  advertisers  check  up  the  effec- 
tiveness of  their  space,  copy  and  mediums  by  offer- 
ing booklets  and  other  advertising  matter  to  those 
making  inquiry.  Experience  shows  that  the  volume 
of  inquiries  bears  a  certain  more  or  less  fixed  relation 
to  the  volume  of  business  obtained  as  a  result. 
Another  proof  of  the  effectiveness  of  advertising 
within  limits  is  that  experience  show^s  it  has  those 
limits.  After  an  advertiser  has  spent  say,  $200,000 
a  year  in  advertising  and  obtained  certain  results, 
he  finds  that  additional  advertising  expenditures  do 
not  produce  proportional  returns;  he  is  approaching 


128  MARKETING 

the  so  called  "saturation  point,"  where  people  cannot 
be  induced  to  buy  more  by  any  effort.  This  limit,  in 
practice,  is  more  imaginary  than  real,  since  the  adver- 
tiser will  continually  be  experimenting  with  new  fields 
or  new  class  and  price  levels.  All  these  circum- 
stances prove  the  effect  of  advertising  on  sales. 

Many  opponents  of  national  advertising  deprecate 
the  sales  aids  or  dealer  helps  of  manufacturers  as 
being  either  worthless  to  the  retailer  or  else  "ninety- 
nine  per  cent"  advertising  for  the  manufacturer  and 
his  goods.  There  has  been  a  basis  for  this  criticism 
in  the  past,  but  the  situation  is  rapidly  changing. 
The  manufacturer's  policy  of  today  is  to  give  adver- 
tising helps  which  will  feature  the  dealer  more  than 
the  manufacturer.  It  is  being  increasingly  realized 
by  progressive  manufacturers  that  nationally  adver- 
tised goods  will  not  suffer  but  on  the  other  hand  be 
greatly  benefited  if  retail  stores  are  assisted  in  build- 
ing up  each  an  individual  prestige  of  its  own.  The 
two  reputations,  local  and  national,  should  not  an- 
tagonize one  another,  but  pull  together. 

13.  Question  of  profits. — That  nationally  adver- 
tised goods  generally  give  smaller  profit  than  unadver- 
tised  goods  is  another  objection  made  by  some  dealers. 
To  them  this  fact,  so  far  as  it  is  a  fact,  signifies  that 
it  is  really  they  who  pay  the  advertising  bill. 
Unquestionably  in  some  cases  this  is  true,  but  as  a 
whole  it  is  not.  The  history  of  advertising  shows 
that  advertisers  have  been  only  too  glad  to  give  dealers 
the  largest  possible  profits  in  order  to  secure  their 


INFLUENCING  RETAIL  SALES  129 

cooperation.  The  effect  of  doing  so  in  most  cases 
has  been  the  exact  opposite.  In  competition  among 
themselves  to  secure  trade,  the  dealers  have  cut  the 
"long"  prices  that  gave  them  large  profits  and  even- 
tually lost  all  interest  in  the  goods  involved.  To  give 
the  retail  trade  an  unusually  large  margin  of  profit 
is  often,  therefore,  anything  but  the  happy  solution 
of  sales  difficulties  that  the  new  advertiser  may  be 
prone  to  think  it. 

Even  when  the  dealer  does  have  to  take  a  small 
profit  as  compared  with  that  on  other  goods,  the  large 
number  of  sales  resulting  from  steady  and  wide 
demand  gained  from  national  advertising  make  his 
aggregate  profits  from  the  goods  larger  than  he  could 
get  on  unadvertised  competitive  goods  giving  perhaps 
larger  individual  profit  but  moving  slower.  Com- 
paring the  trade  resulting  from  both  methods,  the 
New  England  Grocer  and  Tradesman  says: 

Taking  the  trade  as  a  whole,  the  profits  are  better  on 
nationally  advertised  goods,  and  when  the  grocer  con- 
siders the  volume  of  these  goods  which  he  can  sell  and  the 
ease  with  which  the  sales  are  made  he  must  admit  that 
they  are  money  makers  of  the  best  description. 

14.  Advertised  lines  make  dealers  dependent. — One 
of  the  most  persistent  objections  on  the  part  of  dealers 
to  handling  advertised  lines  is  that  it  prevents  them 
from  building  up  a  business  of  their  own  and  that 
they  are  made  dependent  upon  the  favor  of  the  manu- 
facturer. When  the  dealer  advertises  his  own  goods 
and  his  own  brands  he  is  advertising  his  own  products 


130  MARKETING 

for  his  own  store.  If  his  sales  service  and  selling 
policies  create  good-will  for  his  establishment  it  is 
good-will  which  comes  to  him  alone.  He  has  thru 
fair  dealing  with  the  public  deserved  and  secured  its 
confidence  and  in  making  purchases  the  public  will 
rely  on  his  word  rather  than  on  the  name  and  repu- 
tation of  some  manufacturer  who  looks  on  the  dealer 
as  a  mere  distributor  for  him,  one  of  his  animated  slot 
machines. 

The  same  middle  ground  is  to  be  taken  here  as 
before.  Of  course,  the  dealer  should  try  to  build 
up  a  personality  for  his  business.  The  process  of 
doing  so  is  a  slow  one.  Why  should  it  not  be  aided 
by  the  manufacturer's  advertising  and  good-will? 
Whether  the  dealer  becomes  a  slot  machine  depends 
on  himself.  Any  form  of  selling  makes  the  dealer 
a  cog  in  the  marketing  machine.  But  there  is  no 
reason  w^hy  he  should  become  machine-like.  The 
dealer  may  retain  as  much  individuality  and  inde- 
pendence in  selling  trade-marked  goods  as  in  selling 
any  other  kind.  The  large  number  of  bustling  indi- 
vidual retail  shops  thruout  the  country  now  special- 
izing in  advertised  articles  gives  ample  evidence  of  the 
truth  of  this. 

15.  Channels  for  unadvertised  goods  narrowing. — 
Manufacturers  who  do  not  advertise  still  sell  large 
quantities  of  goods  in  trade  channels  which  readily 
accept  unbranded  or  privately  branded  goods.  How- 
ever, all  indications  point  to  the  narrowing  of  this 
demand.     A    constantly    increasing    proportion    of 


INFLUENCING  RETAIL  SALES  131 

manufacturers  are  pushing  their  brands  by  advertis- 
ing. This  gives  them  an  opportunity^  to  escape  jobber 
or  dealer  domination  and  build  a  business  future  for 
themselves  by  going  to  the  court  of  last  resort,  the 
public,  and  getting  a  decision  there. 

Advertised  goods  have  undoubtedly  stimulated 
retail  trade  in  making  the  consuming  public  want 
more  and  better  things.  If  the  advertising  were  to  be 
discontinued  it  would  cause  a  falling  off  in  sales. 
Statistics  show  that  the  majority  of  dealers  favor 
nationally  advertised  goods.  Salesmen  know  that  it 
is  easier  to  interest  dealers  in  such  goods  than  in 
those  which  have  not  been  or  are  not  to  be  advertised. 

They  are  increasing  in  favor,  too,  with  consumers. 
In  the  future  it  will  become  increasingly  difficult  for 
manufacturers  in  most  lines  to  follow  any  other  selling 
policy. 

REVIEW 

\^Tiat  is  the  most  eiFective  way  in  which  manufacturers  influ- 
ence and  assist  the  retailer? 

How  does  national  advertising  insure  a  standard  quality  in  a 
product  ? 

What  are  the  reasons  for  the  assertion  that  nationally  adver- 
tised goods  show  a  bigger  net  profit  for  the  retailer? 

What  is  the  strongest  argument  against  selling  nationally  ad- 
vertised goods?     Is  it  sound? 


CHAPTER  XI 

SELLING  TO  THE  CONSUMER 

1.  Means  of  direct  selling, — When  it  is  a  question 
of  reaching  the  ultimate  consumer  and  the  three-quar- 
ters of  a  million  retail  stores  of  the  country  are  not 
available  or  suitable  for  the  purpose,  there  are,  roughly 
speaking,  four  other  methods  to  employ:  (1)  spe- 
cialty salesmen;  (2)  a  chain  store  system  of  one's 
own;  (3)  mail-order;  and  (4)  direct  by  mail. 

2.  Si^ecialty  salesmen, — The  manufacturer  having 
an  article  to  market  that  requires  in  the  selling  more 
explanation  than  middlemen  are  able  to  give,  usually 
falls  back  on  specialty  salesmen  to  do  it  for  him. 
Such  an  article  is  usually  a  high-priced  novelty. 
That  is  only  another  way  of  saying  that  people  do 
not  want  it  at  first.  It  takes  a  higher  gi'ade  of  sales- 
manship than  is  necessary  in  the  ordinary  channels 
of  business  to  make  them  realize  that  thev  do  want 
It. 

Specialty  salesmen  sell  to  all  classes  of  consumers 
— manufacturers,  dealers,  private  individuals;  and 
ordinarily  not  for  resale.  The  National  Cash  Regis- 
ter Company's  salesmen,  for  instance,  are  specialty 
salesmen  selling  chiefly  to  store  for  the  latter's  own 
use.     The  representatives  of  the  Alexander  Hamilton 

132 


SELLING  TO  THE  CONSUMER  133 

Institute  ^re  specialty  salesmen.  So  are  automobile, 
sewing  machine,  life  insurance,  bond  salesmen.  So, 
in  effect,  were  all  the  business  men  w^ho  went  out  for 
a  day  or  week  to  sell  Liberty  bonds  and  take  sub- 
scriptions for  the  Red  Cross,  United  War  Work  and 
the  rest  of  the  w^ar  charities. 

Sometimes  a  manufacturer  selling  thru  the  usual 
trade  channels  finds  it  necessary  to  make  an  excep- 
tional effort  to  move  an  old  brand  that  has  been  run- 
ning down  in  sales  or  to  introduce  a  new  one,  and 
yet  does  not  feel  that  it  is  advisable  to  bear  down 
any  harder  on  his  regular  sales  staff  or  take  them  off 
their  regular  work.  In  this  case,  he  will  probably 
put  on  a  specialty  salesman  to  push  that  one  brand 
with  jobbers  and  retailers.  It  has,  besides,  the  effect 
of  gingering  up  the  staff.  The  instance  is  not  one 
of  direct  selling  to  the  ultimate  consumer,  but  it  illus- 
trates the  types  of  salesmen  and  the  characteristics 
they  may  be  supposed  to  possess  as  the  result  of  con- 
centration and  intensification  in  their  work. 

A  frequent  use  of  specialty  salesmen  occurs  when 
a  manufacturer  for  one  reason  or  another  wishes  to 
make  an  immediate  consumer  market  for  a  new  article 
both  as  a  means  of  stocking  the  trade  and  possibly 
to  head  off  approaching  competitors.  Some  years 
ago,  when  what  were  then  called  tungsten  electric 
light  bulbs  were  brought  to  a  stage  of  commercial 
value,  there  was  a  rush  among  their  manufacturers 
to  get  them  on  the  market.  Some  of  the  largest 
companies  called  in  high  grade  specialty  salesmen  and 


134  MARKETING 

these  men  went  thru  the  leading  cities  taking  contracts 
from  the  important  office  and  factory  buildings  to 
replace  the  old  carbon  lamps.  The  companies  had 
to  make  an  especially  low  price  to  the  salesmen  to 
permit  them  later  to  clean  up  the  handsome  profit 
they  demanded,  but  the  manufacturers  found  it  worth 
doing  because  the  new  lamps  went  into  almost  instant 
use  in  most  of  the  big  buildings  of  the  East  and  later 
elsewhere,  as  fast  as  they  could  be  manufactured. 
The  high  grade  men  were  followed  by  other  salesmen 
who  took  what  was  left  in  the  territories.  The  ready- 
made  demand  was  subsequently  turned  over  to  the 
trade.  Still  later  some  of  the  manufacturers  trade- 
marked  their  lamps  and  advertised  them  as  "Mazda." 

The  best  type  of  specialty  salesmen  are  really 
business  men  on  their  own  account,  specialty  promot- 
ers, who  pick  up  a  proposition  and  "skim  the  cream" 
off,  then  as  soon  as  the  cream  is  gone  drop  it  for 
another  with  more  cream. 

Other  grades  of  specialty  salesmen  are  sometimes 
organized  in  crews  to  work  a  territory  in  a  house  to 
house  or  office  to  office  canvass  in  support  of  some 
brand  of  goods  which  it  is  intended  to  sell  or  is  being 
sold  thru  local  stores.  The  salesmen  or  saleswomen, 
as  in  some  cases  they  are,  generally  take  orders  instead 
of  selling  for  cash,  but  not  always.  The  orders  may 
be  turned  over  to  the  dealers,  and  the  dealers'  orders 
secured  in  turn  to  forward  to  the  jobbers.  This  is 
one  of  the  standard  ways  of  starting  distribution  for 
a  new  brand  after  the  jobbers  and  dealers  have  both 


SELLING  TO  THE  CONSUMER  135 

objected  that  they  must  be  "shown"  the  existence  of  a 
demand  before  they  will  consent  to  order.  Often 
the  type  of  local  drive  is  accompanied  by  advertising. 
It  is  continued  from  town  to  town  until  the  "repeat 
value"  of  the  goods  is  proved  and  the  jobber  is  no 
longer  afraid  to  stock  for  other  territory,  or  the  manu- 
facturer to  undertake  a  more  general  campaign.  The 
drive  is,  in  other  words,  at  the  same  time  a  test. 

Demonstration  crews  go  thru  the  same  movements, 
except  actual  selling,  and  if  they  are  successful  stimu- 
late the  consumer  to  buy. 

3.  Manufacturers'  chain  stores, — Chains  or  retail 
stores  which  are  owned  and  operated  by  manufac- 
turers are  common  in  some  lines,  as  boots  and  shoes, 
candy,  pianos,  hats,  etc.,  but  their  possibilities  seem 
to  be  limited.  Manufacturers,  as  a  rule,  are  loath 
to  establish  them  and  do  so  only  to  assure  a  market 
for  their  output.  They  fully  realize  that  manufac- 
turing and  retailing  are  distinct  activities  which  call 
for  different  kinds  of  abilitj'-  and  training.  Moreover, 
the  manufacturer  can  almost  always  use  his  capital 
to  much  greater  advantage  in  extending  the  facilities 
of  his  plant  than  in  branching  out  into  retailing,  retail- 
ing being  generally  less  profitable  than  manufactur- 
ing as  respects  the  return  on  a  given  amount  of  capital. 

4.  Mail-order  selling, — This  is  selling  from  an 
advertised  offer  or  an  advertised  catalog  in  contra- 
distinction from  selling  thru  direct-by-mail  letters, 
catalogs  and  literature.  Few  manufacturers  do  a 
large,  exclusively  mail-order  business  direct  with  con- 


136  MARKETING 

sumers.  Many  at  one  time  or  another  may  develop 
a  mail-order  business  on  the  side  while  building  up 
a  dealer  or  agency  system ;  in  these  cases  sometimes 
crediting  the  dealers  or  agents  with  the  sales  and  some- 
times not.  Many  of  the  large  catalog  houses  manu- 
facture some  of  the  goods  they  advertise  and  sell, 
but  as  a  rule  they  find  it  cheaper  to  buy  than  make. 
The  general  reason  why  it  is  not  safe  for  most  manu- 
facturers to  depend  upon  mail-order  advertising  as 
the  sole  means  to  sell  their  goods  is  that  advertising 
is  more  of  a  suggestive  or  stimulating  force  than  a 
strictly  selling  one.  Used  with  other  forces  it  may 
be  of  the  greatest  value.  Used  alone,  it  may  require 
so  much  space  to  effect  the  desired  result,  that  the 
cost  is  prohibitive  and  this  is  generally  the  case. 

Mail-order  selling  thru  agents  is  a  different  thing. 
It  is  not,  strictly  speaking,  direct  selling,  but  as  it 
has  no  place  in  the  regular  jobber-retailer  system  and 
so  has  not  been  described  in  connection  with  it,  it 
deserves  a  word  here.  In  mail-order  selling  of  this 
type,  the  manufacturer  or  wholesaler  advertises  for 
agents  to  sell  his  article  locally  and  offers  premiums 
as  inducements  to  do  so.  The  agents  he  desires  may 
be  women  and  children.  He  may  want  no  more  than 
a  few  hours  of  their  spare  time  and  expect  no  more 
than  $2  or  $3  worth  of  sales  from  each.  But  when 
many  thousand  agents  are  secured  and  set  at  work; 
are  carried  over  from  season  to  season  or  year  to  year ; 
and  a  good  will  developed  with  them  for  the  manu- 
facturer thru  the  selection  of  desirable  premiums,  u 


SELLING  TO  THE  CONSUMER  137 


^ 


very  satisfactory  business  may  be  done'.  The  main 
principle  involved  is  that  there  are  many  people  who 
will  pay  in  spare  time  work  that  they  cannot  pay 
in  money  to  obtain  something  they  want  and  that 
it  is  possible  to  organize  them  by  advertising  and 
provide  work  which  will  enable  them  to  obtain  that 
something — the  premium. 

5.  Direct-hy-mail  selling, — This  is  more  often  with 
modesty  called  direct-by-mail  advertising.  It  is  all 
one.  By  either  expression  is  meant  the  solicitation 
by  mail,  whether  in  the  form  of  orginal  letter,  "pro- 
cessed" letter,  circular,  folder  or  any  form  of  printed 
or  lithographed  literature,  including  catalogs.  Of 
great  and  growing  importance  in  the  commercial  field, 
the  practice  is  also  beginning  to  join  ground  in  the 
field  of  the  final  consumer.  The  most  important 
reason  for  its  growing  popularity  is  its  directness  or 
intimacy  of  touch.  Nothing  but  personal  salesman- 
ship can  secure  more  exclusive  attention  or  make  more 
impression  than  the  personal  letter  or  attractive  mail- 
ing card  or  folder.  A  second  reason  is  its  compara- 
tive inexpensiveness.  Many  businesses  that  cannot 
afford  either  selling  staffs  or  advertising  campaigns 
carry  on  considerable  business  by  this  means,  and 
other  large  businesses  that  use  both  the  other  means 
also  make  heavy  use  of  it  as  an  auxiliary. 

A  common  and  increasing  use  of  the  method  is  the 
familiar  circularization  of  customers  for  the  local 
dealer  on  behalf  of  the  manufacturer's  product.  The 
manufacturer  prepares  the  matter  and  sends  it  out 


138  MARKETING 

generally  under  the  dealer's  name  and  often  with  his 
signature.  At  first  these  mailings  used  to  be  ordi- 
nary letters  and  printed  cards.  Nowadays,  they  are 
generally  carefully  composed  and  often  handsomely 
printed  or  lithographed  matter  which  does  not  fail 
to  make  an  impression  on  both  the  retailer  and  his 
customers.  JNIany  times  the  retailer  is  only  too  glad 
to  pay  the  postage  on  these  and  more.  Some  styles 
of  mail  matter  are  protected  by  patent,  the  patent 
owner  selling  the  service  to  manufacturers. 

REVIEW 

Name  four  uses  to  which  specialty  salesmen  are  put.  Why 
does  this  type  of  salesman  require  a  high  grade  of  ability? 

What  has  been  the  experience  of  manufacturers  who  have  es- 
tablished their  own  retail  stores? 

What  is  strictly  meant  by  mail-order  selling? 

Distinguish  direct-by-mail  selling  from  mail-order  selling. 


CHAPTER  XII 

GOOD-WILL  AND  PRICE  MAINTENANCE 

1.  Price  maintenance  defined, — Virtually  all  manu- 
facturers of  trade-marked  or  otherwise  branded  goods 
are  desirous  that  they  should  be  resold,  whether  by 
jobbers  to  retailers,  or  by  retailers  to  the  public,  at 
uniform  prices,  so  much  for  the  jobbers  and  so  much 
for  the  retailers,  and  should  not  be  subject  to  price- 
cutting.  This  condition  is  called,  by  the  manufac- 
turer, price  maintenance.  According  to  it,  both  job- 
bing and  retail  prices  may  be  either  fixed  at  certain 
levels  or  permitted  a  small  variation  within  minimum 
and  maximum  limits  to  allow  for  differences  in  locali- 
ties. The  retail  prices,  especially,  are  not  supposed 
to  be  affected  by  any  price  concessions  the  manufac- 
turer may  give  to  those  dealers  who  purchase  in  large 
quantities. 

2.  Price  maintenance  an  issue, — Many  manufac- 
turers, as  well  as  observers  of  business  tendencies, 
have  gone  fiu*ther  than  to  approve  the  desire  and  con- 
cede the  moral  right  of  the  manufacturer  to  price 
maintenance.  They  call  it,  in  addition,  a  necessity. 
In  this  opinion  the  United  States  Supreme  Court  hajs 
not  concurred.  While  it  has  not  attacked  price  main- 
tenance as  an  abstract  right,  it  nevertheless  has  denied 

139 

V  — 11 


140  MARKETING 

to  manufacturers  the  use  of  several  expedients  by 
which  the  right  was  secured  and  has  consequently 
dealt  the  practice  a  heavy  blow.  However,  the  ques- 
tion is  by  no  means  settled.  It  was  placed  in  abeyance 
by  the  war.  Signs  multiply  that  it  will  again  become 
an  issue  and  one  of  the  livest  sort,  regarding  which 
every  man  in  active  business  life,  particularly  one  who 
is  connected  with  a  business  marketing  its  own  brands 
and  possibly  advertising  them,  should  take  pains  to 
inform  himself. 

3.  Rise  and  development. — Price  maintenance  is 
more  or  less  directly  an  effect  of  three  important 
factors  in  business — large  scale  production,  trade- 
marking  or  branding  and  advertising.  When,  a  few 
years  ago,  in  consequence  of  enlarged  factory  facili- 
ties, goods  began  to  be  produced  faster  than  they 
could  be  sold  thru  the  regular  channels  of  distribution, 
competition  for  the  control  of  these  channels  neces- 
sarily became  intense.  Manufacturers  were  obliged 
to  give  more  and  more  attention  to  marketing,  they 
were  driven  to  devise  all  manner  of  new  plans  for 
inducing  jobbers  and  retailers  to  handle  and  push 
their  goods.  Retailers,  in  their  turn,  found  that  they 
must  struggle  among  themselves  for  the  local  trade 
in  ways  of  which  they  had  not  previously  dreamed. 
The  jobbers,  being  relatively  few  and  powerful,  were 
at  first  least  affected. 

So  long  as  the  demand  for  goods  had  exceeded  the 
supply,  the  manufacturers  of  the  country  had  been 
little  disturbed  about  competition.     They  had  gener- 


GOOD-WILL  AND  PRICE  MAINTENANCE      141 

ally  taken  their  share  of  business  and  been  content. 
When  some  discrimination  on  the  part  of  the  jobber 
became  necessary  and  the  weight  of  his  hand  began 
to  be  felt  by  the  heretofore  independent  producer,  it 
was  only  a  question  of  time  before  new  tendencies 
would  declare  themselves.  The  producers  began  to 
look  around.  They  discovered  a  condition  they  had 
not  realized  before,  namely,  that  the  real  market  for 
their  goods  was  not  the  jobbers  and  retailers,  but 
the  consuming  public — the  jobbers  and  retailers!  were 
only  middlemen. 

The  rest  followed  quickly.  The  practice  of  brand- 
ing goods  is  an  old  one  and  its  principle  had  been 
fairly  apparent  to  the  manufacturers,  but  it  had  not 
previously  offered  any  special  advantages  to  them  for 
the  reason  that  the  channels  of  distribution  were  in 
control  of  the  middlemen  and  the  reputations  of  the 
latter  were  more  powerful  than  the  reputation  of  any 
manufacturer's  brands  could  be.  Branding  was  indis- 
pensable as  a  means  of  enabling  the  public  to  identify 
the  manufacturer's  goods  after  they  reached  the  mar- 
ket,'but  something  else  in  addition,  some  further  force, 
was  needed  to  get  them  to  the  point  where  the  public 
would  be  sure  to  see  them. 

4.  Advertising  standardizes  price. — The  force  that 
could  do  this  was  soon  discovered  to  be  advertising. 
Branding  identified  the  goods ;  advertising  made  them 
known.  After  they  had  been  tried,  their  quality  and 
price  determined  their  future  fate.  Abeady  news- 
paper and  poster  advertising  had  established  the  value 


142  MARKETING 

of  local  publicity,  and  general  magazine  advertising, 
which  had  been  gathering  head  since  soon  after  the 
Civil  War,  eventually  demonstrated  the  power  of 
publicity  over  a  broad  or  national  area,  in  spite  of 
many  mistakes  and  much  waste  of  money  on  the  part 
of  advertisers,  for  which,  however,  the  principle  of 
advertising  is  not  to  be  blamed. 

The  branding  and  advertising  of  the  goods  called 
attention  to  their  quality;  the  public  was  invited  to 
satisfy  itself  on  that  point.  Besides  quality,  there 
are  two  other  elements  possessed  by  every  article: 
quantity  and  price.  In  the  interest  of  publicity,  the 
manufacturer  standardized  both  of  these  as  he  had 
previously  standardized  quality ;  that  is,  he  gave  as 
much  quality  as  he  dared  or  wanted  to  give  at  a  fixed 
price.  It  is  not  necessary  to  suppose  that  in  doing 
this  the  manufacturers  were  animated  by  philan- 
thropic motives.  They  acted  with  an  eye  to  their 
own  interests.  But,  in  general,  their  aim  was  to  fix 
a  price  low  enough  to  sell  the  article  rapidly  to  the 
public  and  yet  high  enough  to  return  at  least  a  fair 
profit  and  insure  to  the  middlemen  whose  good-will 
was  desirable  if  not  absolutely  necessary,  a  similarly 
satisfactory  return.  The  price  thus  fixed  became  an 
integi-al  part  of  the  goods.  It  was  featured  in  the 
advertising  and  became  known  to  the  public.  These 
two  features,  uniform  price  to  the  public  and  uniform 
prices  or  profits  to  the  middlemen,  are,  according  to 
the  manufacturers,  the  foundation  of  successful  brand 
promotion. 


GOOD-WILL  AND  PRICE  MAINTENANCE      143 

5.  Price-cutting  advertises  dealer  who  does  it. — It 
was  soon  discovered  by  the  retailers  that  advertised 
brands,  for  the  very  reason  that  their  retail  price  was 
standard  and  widely  known,  furnished  an  ideal  sub- 
ject for  price-cutting.  When  everybody  knew  that 
a  certain  proprietary  article  was  advertised  by  the 
manufacturer  to  sell  at  $1.00,  and  a  local  department 
store  advertised  it  to  sell  at  79  cents,  the  cut  price  was 
a  great  inducement  to  buy.  The  department  store 
that  sold  the  articles  at  the  cut  price  might  actually 
lose  money  on  the  sales,  but  on  the  other  hand  it  would 
have  drawn  people  into  the  place  and  would  sell  them 
other  articles  on  which  profits  would  be  secured  to 
compensate  for  the  price  reduction.  The  profits  on 
not  merely  one  article,  but  dozens  of  articles  and  even 
on  a  whole  department,  have  been  systematically 
sacrificed  in  order  to  advertise  low  prices  and  attract 
trade,  to  whom  the  low  prices  on  a  few  goods  were  a 
presumption  of  low  prices  on  all. 

6.  Price-cutting  demoralizes  trade, — The  amount 
of  loss  or  profit  to  the  retailer  was  not  a  matter  which 
profoundly  touched  the  manufacturer;  his  interest 
was  in  the  effect  on  his  goods  and  their  distribution. 
The  fii'st  effect  he  noted  in  regard  to  price-cutting 
was  that  competing  retailers  complained  of  it  and  held 
him  responsible,  their  supposition  being  that  he  had 
given  the  department  store  a  special  secret  discount 
in  return  for  a  purchase  in  quantity.  This  might 
have  been  true,  manufacturers  often  being  as  short- 
sighted as  other  classes  and  prone  to  see  the  immediate 


lU  MARKETING 

dollar  and  overlook  the  distant  trouble.  Some  few 
manufacturers  actually  encouraged  price-cutting  on 
their  goods.  If  the  manufacturer  were  powerless  to 
remedy  the  conditions,  or  disinclined  to  do  so,  the  other 
retailers  would  cut  the  price  also  and  after  their  stocks 
had  been  cleaned  out,  would  refuse  to  reorder  unless 
compelled  by  the  public  demand  to  do  so.  Then 
they  would  reluctantly  stock  the  goods  and  fill  calls 
only,  making  no  effort  to  push  the  goods  or  cooperate 
with  the  manufacturer.  In  cither  event,  there  would 
be  no  money  in  it  for  the  retailers.  They  would  cry 
down  the  advertised  brands  and  push  competing  bulk 
goods  or  private  brand  substitutes. 

The  situation  would  not  have  been  an  especially 
serious  matter  to  the  retailer  if  it  had  been  confined 
to  a  few  articles  or  lines,  but  as  a  matter  of  fact  it 
began  to  affect  almost  all  lines  and  grades  of  goods, 
and  many  retailers,  the  smaller,  neighborhood  stores 
for  the  most  part,  began  to  suffer.  They  had  not 
previously  been  able  to  compete  with  the  big  stores 
on  bulk,  unbranded  or  unknown  goods,  which  the 
big  stores  could  buy  in  large  quantities  at  "inside" 
prices  and  if  necessary  sell  at  prices  their  less  for- 
tunate competitors  could  not  meet.  Now  the  profit 
on  the  advertised  goods  was  being  destroyed  for  them, 
the  little  retailers.  Owing  to  a  combination  of  cir- 
cumstances of  which  price-cutting  competition  was 
only  one,  many  retailers  in  different  lines  began  to 
go  to  the  wall.     Price-cutting  speeded  the  tendency. 

7.  Problem  for  national  advertisers, — The  national 


GOOD-WILL  AND  PRICE  MAINTENANCE      145 

advertiser's  situation  was  this:  he  might,  if  he  were 
able,  keep  on  advertising  and  force  the  little  retailers 
everywhere — as  long  as  they  were  in  business — to 
handle  his  goods  whether  they  made  any  profit  on 
them  or  not,  but  he  would  not  be  able  in  that  event  to 
look  to  them  for  educational  and  promotional  cooper- 
ation, and  after  they  began  to  go  out  of  business  he 
would  have  fewer  outlets  for  his  goods.  He  might 
sell  more  goods  for  a  time  thru  their  intensive  work 
and  advertising,  but  in  the  end  there  is  no  comparison 
between  a  few  big  centers  making  spasmodic  drives 
and  a  host  of  little  stores  selling  regularly.  L^p  to 
a  certain  point,  moreover,  it  is  much  safer  for  a  manu- 
facturer to  sell  many  buying  centers  than  a  few.  He 
is  not  so  much  at  the  mercy  of  individual  stores  and 
can  afford  to  lose  one  now  and  then  without  being 
much  affected,  whereas  when  one  big  customer  drops 
out,  it  is  a  blow.  So,  while  some  of  the  larger  national 
advertisers  did  not  suffer  serious  loss  or  inconvenience 
from  price-cutting,  they  did  not  like  the  tendency: 
what  injured  the  little  retailers  and  impaired  the  whole 
system  would  sooner  or  later  reach  and  injure  them. 
Most  national  advertisers  are  not  big.  Their 
advertising  is  not  and  cannot  be  made  powerful 
enough  to  smother  all  opposition,  "drive  the  consumer 
into  the  dealer's  store"  and  "force  the  dealer"  to  give 
him  what  he  calls  for.  These  phrases  once  did  duty 
in  advertising  circles,  but  they  have  long  since,  for 
most  advertisers,  gone  into  the  discard.  To  most 
national  advertisers,  the  dealers'  cooperation  is  a  mat- 


146  MARKETING 

ter  of  commercial  life  or  death.  Advertising  is, 
broadly  speaking,  a  complementary  force  only;  it 
starts  something,  but  the  dealer  has  to  finish  it.  And 
it  was  a  matter  of  the  greatest  consequence  to  the 
advertisers  whether  they  had  few  or  many  outlets. 
It  might  be  all  right  for  some  big  dealer  to  take  an 
unknown  manufacturer's  product  and  price  it  as  low 
or  as  high  as  he  wanted*  Nobody's  reputation  but 
the  merchant's  was  involved.  The  public  held  him 
responsible  for  price  and  quality.  But  when  he  cut 
the  nationally  advertised  brand  he  not  only  depreci- 
ated the  product  in  the  eyes  of  the  public  by  convey- 
ing the  inference  that  it  was  originally  overpriced 
and  was  being  so  sold  by  most  other  retailers,  but 
he  also  destroyed  or  impaired  the  manufacturer's 
good- will  with  other  dealers  and  injm^ed  them  as 
well. 

8.  Price  cutters'  defense. — All  of  these  contentions 
are  not  admitted  by  the  price  cutters.  Conceding  that 
many  dealers  are  injured  by  their  price  raids,  they 
justify  their  acts  as  being  the  public's  only  protection 
against  overcharge,  and  dismiss  the  independent  deal- 
er's complaint  as  the  wail  of  inefficiency. 

9.  Price  maintenance  thru  contracts, — The  situa- 
tion did  not  suddenly  become  acute.  The  manufac- 
turers began  to  act  as  soon  as  they  saw  the  early 
tendency.  Their  first  solution  was  to  secure  contracts 
from  their  retail  customers  assuring  that  they  would 
not  cut  prices.  For  several  years  this  worked  satis- 
factorily.    Most  of  the  retailers  had  no  wish  to  cut 


GOOD-WILL  AND  PRICE  MAINTENANCE      147 

prices.  They  were  glad  to  get  a  full  profit  on  adver- 
tised goods  and  they  appreciated  the  efforts  of  the 
advertisers  to  send  business  to  them.  The  few  retail- 
ers who  were  able  to  secure  goods  from  dealers  or 
jobbers  thru  underground  channels  and  then  advertise 
them  at  cut  prices  were  at  first  not  especially  trouble- 
some. jNIanufacturers  felt  that  they  had  the  situation 
so  well  in  hand  that  they  even  developed  short-cut 
contracts  securing  price  maintenance  in  some  cases 
thru  "notice";  that  is,  the  acceptance  of  a  box  or 
package  on  w^hich  notice  to  that  effect  was  labeled 
was  assumed  by  manufacturers  to  constitute  a  con- 
tract. This  did  away  with  the  necessity  of  securing 
a  contract  from  every  jobber  and  retailer. 

10.  Price  maintenance  thru  contract  illegal. — Pre- 
vious to  1908  no  one  seems  to  have  questioned  the 
propriety  of  these  agreements  when  they  were  made 
without  coercion.  Then  came  the  change  and  the 
first  adverse  court  decision.  The  feeling  against 
trusts  and  large  corporations  had  for  some  years  been 
running  high.  Anti-trust  legislation  had  been  passed. 
The  movements  which  eventuated  in  the  prosecution 
and  dissolution  of  the  old  Standard  Oil  Company 
and  the  old  American  Tobacco  Company  were  under 
way.  Apparently  it  had  occured  to  those  retailers 
who  were  hostile  to  nationally  advertised  goods  to 
find  in  the  price  maintenance  policies  of  the  manu- 
facturers a  parallel  to  the  fixing  and  manipulation 
of  prices  which  the  courts  and  Congress  had  con- 
demned and  to  construe  their  own  acts  of  price-cutting 


148  MARKETING 

as  the  laudable  means  of  protecting  the  public  against 
the  exactions  of  incipient  monopolists. 

At  all  events,  they  became  bolder  in  their  defiance 
of  the  trade-mark  owners  and  their  contracts,  and 
during  the  past  decade,  with  a  few  exceptions  only, 
they  have  been  sustained  in  their  attitude  by  the  courts. 
The  Supreme  Court  has  denied  the  trade-mark  owner 
the  power  to  enforce  a  contract  of  price  mainten- 
ance, on  the  ground  of  its  being  contrary  to  public 
policy.  When  the  manufacturer  has  parted  with  the 
goods  and  received  the  money  therefor,  it  says  in 
substance,  he  has  no  further  interest  in  or  control 
over  its  subsequent  course  in  traffic.  To  arrange  with 
others  to  prevent  price  cutting,  has  been  held  to  be 
conspiracy  in  restraint  of  trade.  The  Federal  Trade 
Commission  has  even  gone  further  than  this  and  in 
the  case  against  Chester  Kent  &  Company  of  Boston 
declared  that  the  manufacturer  cannot  legally  refuse 
to  sell  to  price  cutters,  or  even  hint  at  price  mainten- 
ance in  his  dealings  with  customers.  The  United 
States  Supreme  Court  has  intimated  that  it  is  dis- 
inclined to  hear  any  more  cases  on  the  subject  and 
that  the  matter  should  be  threshed  out,  if  at  all,  in 
Congress. 

As  the  case  stands  at  this  point,  the  manufacturer 
is  permitted  to  sell  at  any  price  that  suits  him,  either 
direct  or  thru  agents,  but  not  otherwise  to  control 
the  price.  In  selling  thru  agents  of  course,  he  does 
not  part  with  the  ownership  of  the  goods;  his  agents 
merely  act  for  him. 


GOOD-WILL  AND  PRICE  MAINTENANCE      149 

11.  General  efect  on  distribution, — These  decisions 
of  the  courts  have  had  a  profound  effect  on  a  large 
portion  of  the  business  world.  They  have  been,  gen- 
erally speaking,  of  two  kinds:  those  touching  the 
manufacturers  and  those  regarding  the  middlemen; 
one  on  marketing,  the  other  on  merchandising.  The 
manufacturer,  forbidden  to  use  the  simple,  direct, 
inexpensive  means  of  maintaining  the  resale  price  of 
his  goods,  has  turned  when  he  could  afford  to  do  so 
to  other  methods  which  either  limited  his  distribution, 
or  increased  his  costs  and  so  his  price.  As  the  pro- 
duction and  sale  of  goods  must  in  the  last  analysis 
be  considered  as  a  service  to  the  public,  for  which 
the  public  pays,  it  is  evident  that  the  public  suffers 
a  loss  when,  in  order  to  protect  his  price  and  assure 
his  dealers  a  living  profit,  the  manufacturer  gives 
them  exclusive  rights  in  a  town  or  neighborhood,  or 
consigns  his  goods  to  dealers,  or  markets  them  thru 
agents,  in  any  case  curtailing  the  distribution  or 
investing  more  capital  than  would  otherwise  be  neces- 
sary, thus  adding  an  unnecessary  increment  to  the 
cost  of  the  product. 

In  the  retail  field,  the  period  of  the  growth  of  price- 
cutting  in  standard  advertised  brands  was  also  the 
period  of  the  development  of  the  department  store, 
large  mail-order  house  and  store  chain  or  syndicate. 
The  former  period  was  not  the  sole  or  most  important 
cause  of  the  latter.  Advertised  goods  were,  and  are, 
only  a  small  part  of  the  total  amount  sold.  The 
tendency  toward  centralization  was  produced  by  many 


150  MARKETING 

factors.  Increased  ease  of  communication  was  one; 
other  things  being  equal,  people  prefer  to  trade  in 
large  centers  and  large  stores  where  the  range  of 
choice  is  wider  than  it  is  in  small  stores.  The  growth 
of  cities  provided  such  trade  as  the  stores  had  never 
before  known  and  they  were  forced  to  grow ;  in  grow- 
ing they  discovered  new  principles  of  business  and 
in  consequence  widened  the  gulf  between  themselves 
and  the  little  stores. 

Some  of  the  business  principles  they  discovered 
were  quantity  purchases  and  sales  drives,  local  adver- 
tising; accounting  and  cost  finding,  and  turnover 
practice.  These  were  accidental  and  temporary 
advantages  only.  The  knowledge  of  them  is  being 
more  and  more  diffused  thruout  the  sales  structure. 
In  time,  a  new  balance  between  the  big  and  little 
stores  would  have  been  reached  and  both  classes  would 
have  gone  forward  together  as  before.  The  tendency 
towards  this  balance  or  equalization  of  opportunity 
was  fostered  by  the  development  of  national  brand- 
ing and  advertising,  which  are  diffusive,  centrifugal 
forces,  scattering  goods  to  the  remotest  corners  of 
the  country  and  putting  all  middlemen  who  supply 
them  on  an  equal  basis.  Price-cutting  grasped  this 
force  that  would  have  protected  the  small  retailers, 
and  turned  it  against  them.  Instead  of  mitigating 
the  tendency  towards  concentration  of  power,  it 
increased  it. 

12.  Ray  of  hope  for  price  maintenance, — The  situ- 
ation would   appear   altogether   discouraging   from 


GOOD-WILL  AND  PRICE  MAINTENANCE      151 

the  viewpoint  of  the  trade-mark  owner  and  the  aver- 
age retailer  except  for  several  important  circum- 
stances, some  of  which  are  of  recent  occurrence  and 
others  which  are  only  just  beginning  to  receive  general 
attention.  One  of  them  is  the  decision  of  a  federal 
district  court  in  the  case  brought  in  Virginia  against 
Colgate  &  Company,  for  an  alleged  violation  of  the 
Sherman  Act.  In  this  case,  the  court  found  that  the 
indictment  "failed  to  charge  any  offense,  either  in  re- 
straint of  trade  and  commerce,  under  the  Sherman 
Act,  or  any  other  law  of  the  United  States."  In  view 
of  the  fact  that  the  evidence  showed  the  distribution  of 
telegrams  and  lists  of  uniform  prices  in  efforts  on  the 
part  of  the  manufacturers  to  persuade  dealers  to 
maintain  such  prices,  and  refusal  to  sell  dealers  until 
they  gave  assurances  and  promises  to  do  so,  the  deci- 
sion is  equivalent  to  saying  that  a  manufacturer  has 
the  right  to  refuse  to  sell  distributors  who  demoralize 
or  may  demoralize  prices.  In  other  words,  it  nega- 
tives the  Federal  Trade  Commission's  view. 

A  suit  on  the  part  of  a  price-cutter  to  compel  a 
manufacturer  to  sell  him  failed  some  years  ago  in 
a  federal  district  court,  but  the  Federal  Trade  Com- 
mission has  seemed  to  consider  that  decision  over- 
ruled by  the  Supreme  Court  in  decisions  given  later. 
If  the  Colgate  decision  is  upheld  by  the  Supreme 
Court,  manufacturers  will  have  one  certain  way  of 
protection  open  to  them,  one  not  the  best,  one  that 
does  not  touch  the  main  point  at  issue,  but  still  one 
that  is  much  better  than  nothing. 


152  MARKETING 

13.  Issue  one  of  trade-mark  protection, — A  deci- 
sion that  would  seem  to  be  of  more  far-reaching  im- 
portance was  rendered  about  the  same  time  in  the 
Chancery  Court  of  New  Jersey  in  a  suit  brought  by 
Robert  H.  Ingersoll  &  Bro.  against  a  department 
store  they  had  sued  to  enjoin  it  from  the  use  of  their 
trade-mark  in  connection  with  price-cutting.  In  this 
case,  the  court  sustained  the  position  of  the  manu- 
facturer and  found  among  other  things  the  following: 

The  practice  of  a  manufacturer  who  makes  and 
sells  an  article  not  the  subject  of  monopoly  but  in- 
stead subject  to  keen  competition,  the  price  of  which 
has  been  standardized  thru  extensive  and  expensive 
advertising,  of  affixing  a  notice  under  the  terms  of 
which  purchasers  are  forbidden  to  resell  at  less  than 
the  standard  price  without  removing  the  manufac- 
turer's marks  and  guarantee,  is  not  offensive  to  public 
policy  or  the  Sherman  or  Clayton  acts. 

A  retailer  who  .buys  the  article  from  the  jobber 
with  knowledge  of  the  conditions  imposed  upon  the 
resale  is  bound  by  such  conditions. 

When  a  retailer  purchases  articles  thru  a  jobber 
in  New  York,  which  articles  have  become  known  to 
the  public  generally  thru  extensive  advertising  as 
standard  priced,  with  knowledge  that  the  articles 
are  sold  under  condition  that  they  are  not  to  be  re- 
sold at  less  than  the  standard  price  without  remov- 
ing the  manufacturer's  trade  name  and  guarantee, 
with  the  preconceived  purpose  of  offering  them  to  the 
public  in  the  state  at  a  price  less  than  standard,  so 


GOOD-WILL  AND  PRICE  MAINTENANCE     153 

that  the  public  may  beheve  that  all  the  goods  in  the 
store  are  similarly  low  priced,  whereas  in  fact  they 
are  not,  he  will  be  enjoined  from  selling  at  less  than 
the  standard  price  without  removing  the  manufac- 
turer's trade-marks  and  guarantee. 

The  peculiar  importance  of  the  decision  lies  in  the 
fact  that  a  vital  distinction  is  established  between 
the  goods  and  their  trade-mark,  and  that  it  plainly 
shows  that  it  is  not  the  quality  of  the  goods  but  the 
reputation  of  the  trade-mark  that  the  price-cutter 
wishes  to  trade  upon  and  exploit.  The  manufacturer 
is  perfectly  willing  to  let  the  dealer  do  anything  he 
wants  with  the  goods  and  sell  them  at  any  price  pro- 
vided he  will  remove  the  trade-mark  and  guarantee; 
he  will  even  be  glad  to  manufacture  the  plain  goods 
for  him.  But  that  does  not  suit  the  price-cutter. 
It  is  the  trade-mark  he  is  after.  Still  later,  the  Fed- 
eral Trade  Commission  recommended  to  Congress 
the  passage  of  legislation  permitting  manufacturers 
to  fix  resale  prices  for  trade-marked  or  otherwise 
identified  articles,  under  government  supervision. 
Congress  has  not  hitherto  been  favorable  toward  such 
legislation. 

14.  Price  maintenance  and  the  public  interest, — 
The  New  Jersey  decision  clears  the  air.  It  is  much 
easier  than  before  to  identify  price  maintenance  with 
the  public  interest.  Manufacturers  had  complained 
of  price-cutting  and  the  price-cutters  had  demon- 
strated a  direct  public  advantage  from  it.  Manu- 
facturers had  asserted  that  it  ruined  their  advertising 


154  MARKETING 

and  many  people  hostile  to  advertising  had  thought 
that  was  not  a  bad  thing.  Manufacturers  had  called 
price-cutting  unfair  competition  and  retailers  in  reply 
had  raised  a  shout  of  coercion. 

One  must  go  deeper  to  find  an  issue  that  touches 
the  public.  This  decision  in  the  New  Jersey  court 
furnishes  it.  A  trade-mark  is  granted  by  the  govern- 
ment in  order  to  identify  an  article  or  indicate  its 
point  of  origin.  It  is  protected  by  law  on  the  pre- 
sumption, which  is  also  the  fact,  that  the  owner  of  the 
trade-mark,  being  known,  must  protect  the  quahty 
of  the  article  it  identifies  and  that  he  thereby  serves 
a  public  interest.  A  trade-mark  gives  a  monopoly 
not  in  the  goods  but  in  the  name.  The  name  is  the 
manufacturer's  way  of  guaranteeing  that  the  goods 
are  of  high  and  uniform  quality.  The  whole  purpose 
of  trade-marking  is  in  order  that  the  public  shall  be 
able,  after  it  has  tested  the  quality  of  the  goods  and 
liked  them,  to  find  them  again — the  same  in  quality, 
size  and  price.  This  is  so  manifestly  a  public  neces- 
sity that  trade-mark  rights  have  always  been  jeal- 
ously guarded  by  the  courts. 

Still  higher  ground  might  be  and  by  some  has  been 
taken.  A  condition  of  material  progress  is  that 
people  know  what  they  are  eating,  wearing,  using  for 
any  and  every  purpose.  They  must  be  able,  as  pre- 
viously pointed  out,  to  secure  again  what  they  have 
found  good,  and  avoid  what  they  have  found  want- 
ing. But  life  is  too  short  for  us  to  post  ourselves  on 
all  sorts  of  qualities  and  prices  of  all  sorts  of  unknown. 


GOOD-WILL  AND  PRICE  MAINTENANCE      155 

unidentified  products,  and  the  reputations  of  all  man-^ 
ner  of  unknown  or  half-known  manufacturers  and 
middlemen.  Who  will  tell  me  if  this  is  the  same 
product  I  bought  before  and  liked?  How  do  I  know 
that  it  was  right  to  charge  25  cents  for  that  last  week 
and  35  cents  this  week?  Who  will  vouch  for  quality, 
quantity,  price?  Who  will  take  all  the  responsibility 
and  care  of  scrutinizing  each  purchase? 

We  have  to  do  this  still  with  unbranded  goods. 
We  are  never  sure  of  the  same  qualit}^  or  price  twice 
running,  or  of  their  freshness,  or  cleanliness.  In  buy- 
ing them  from  the  jobber  or  direct,  the  dealer  had  to 
exercise  the  same  kind  of  care,  and  the  jobber  also 
in  buying  from  his  sources  of  supply.  It  was  once 
the  same  on  everything.  Buying  and  selling  took 
more  time  and  intelligence  and  therefore  cost  more; 
and  the  cost  had  to  be  added  to  the  price  of  goods; 
the  public  paid  it. 

Then  branding  and  advertising  came  in.  The 
goods  were  identified;  the  manufacturer's  reputation 
and  future  prosperity  were  at  stake.  He  had  to 
maintain  or  improve  the  quality  of  his  goods.  If 
he  did  not,  a  more  intelligent  competitor  got  the 
business  away  from  him.  In  order  to  protect  the 
quality  of  the  goods  (supposing  they  were  food  pro- 
ducts) he  put  them  in  packages  and  even  made  these 
air-tight  and  moisture-proof.  There  have  been  out- 
cries at  various  times  against  the  cost  of  packaging, 
but  few  people  care  to  go  back  to  the  old  days  of 
loose  goods  in  open  bins  with  the  resultant  exposure 
v  — 12 


166  MARKETING 

to  dirt  and  vermin.  Furthermore,  the  cost  of  pack- 
aging is  no  more  than  that  of  paper  or  string,  and 
the  clerk's  time  in  weighing  and  wrapping.  Last, 
it  should  not  be  forgotten  that  the  lower  cost  of  bulk 
goods  is  due  to  the  fact  that  there  is  little  demand 
for  them  in  that  shape,  that  they  are  the  small  sur- 
plus left  from  the  package  supply,  a  surplus  on  which, 
moreover,  nobody  has  wasted  any  time  to  assure  their 
quality  and  cleanliness. 

The  fact  that  the  trade-marked  goods  are  not  of 
themselves  monopoly  goods  is  the  source  of  another 
immense  benefit  to  the  public,  in  the  stimulation  of 
competition  and  invention.  Take  one  instance,  the 
Gillette  safety  razor,  retailing  at  $5.  There  were 
safety  razors  before  the  Gillette,  but  they  were  not 
advertised.  Few  people  knew  about  them  or  cared 
to  experiment  with  them.  Gillette  popularized  self- 
shaving.  Five  dollars  looks  like  a  lot  of  money  to 
some  people  for  something  that  costs  less  than  a  dollar 
to  make.  Compare  the  cost,  however,  and  the  cost 
of  the  blades,  with  the  cost  of  shaving  to  the  men 
who  do  not  shave  themselves.  Above  all,  however, 
consider  that  since  the  Gillette  razor  was  put  out 
and  as  a  result  of  the  branding  and  advertising,  some- 
where in  the  vicinity  of  one  hundred  other  safety 
razors  have  come  upon  the  market  and  the  public 
now  has  a  choice  of  all  kinds  and  qualities  of  safety 
razors  ranging  in  price  from  two  or  three  times  $5 
down  to  ten  cents,  possibly  a  nickel.  Millions  of 
dollars  have  been  spent  for  safety  razors  and  hundreds 


GOOD-WILL  AND  PRICE  MAINTENANCE      167 

of  millions  of  dollars  have  been  saved  by  self -shaving. 
All  this  has  taken  place  within  a  period  of  ten  or 
fifteen  years.  Had  it  not  been  for  branding — the 
patent  is  actually  a  minor  consideration — and  adver- 
tising, the  change  would  have  taken  no  one  knows 
how  many  decades. 

The  same  thing  is  true  of  every  other  line  or  class 
of  articles.  Some  manufacturer  brands  and  adver- 
tises his  product  to  shake  off  the  competition  of  trade 
rivals,  and  the  result,  sooner  or  later,  according  to 
his  success,  is  a  variety  of  trade-marked  articles  of 
every  quality  and  price,  on  which  the  manufacturer 
assumes  responsibility.  Not  only  the  manufacturers 
gain,  but  the  public  gains  from  this  system  based  upon 
trade-mark  protection.  Destroy  it,  if  you  can,  by 
price  cutting,  and  it  is  certain  that  you  will  limit  the 
number  of  articles  and  their  popularization  and  in- 
crease the  cost  of  all. 

15.  Waiting  for  Congress  or  the  Supreme  Court. — 
There  will  never  be  any  absolute  certainty  on  the 
subject  of  price  maintenance  until  the  question  as 
presented  in  this  new  light  by  the  New  Jersey  Court 
is  passed  upon  by  the  United  States  Supreme  Court, 
or  the  view  is  adopted  by  Congress. 

It  is  a  somewhat  curious  thing  that  the  question  in 
this  fundamental  form  has  never  come  before  the 
Court  and  that  the  Court  has  never  heard  any  argu- 
ment upon  the  merits  of  price  maintenance  as  trade- 
mark protection.  All  the  various  decisions  that  have 
been  rendered  have  been  on  collateral  issues,  as  to 


158  MARKETING 

whether,  for  instance,  a  secret  formula  or  a  copy- 
right was  entitled  to  the  same  supposed  right  enjoyed 
by  a  patent  in  enforcing  price  maintenance;  as  to 
whether  such  a  right  actually  was  implicit  in  the  pat- 
ent; as  to  whether  price  maintenance  could  be  effec- 
ted by  license,  etc. 

In  the  eyes  of  the  manufacturers,  the  Court  in  all 
these  cases  seems  to  have  been  acting  on  the  suppo- 
sition that  there  was  an  obvious  analogy  between 
price  maintenance  and  price  manipulation,  the  latter 
having  been  at  a  previous  time  condemned  by  the 
Court.  To  the  latter,  it  must  have  seemed  that  the 
manufacturers  had  strong  reasons  for  not  meeting 
that  question  fairly  and  not  endeavoring  to  show, 
if  they  could,  that  the  analogj^  was  a  false  one  and 
that  price  maintenance  was  in  harmony  with  the  public 
policy,  was  even,  in  fact,  demanded  by  it.  Prob- 
ably, as  a  matter  of  fact,  at  that  time  a  great  many 
manufacturers  and  their  lawyers  were  very  far  from 
being  sure  of  it  themselves.  They  knew  that  they 
wanted  price  maintenance  and  felt  that  they  ought 
to  have  it,  but  the  broad  reasons  in  support  of  it  have 
become  apparent  only  after  long  study  and  experi- 
ence. 

It  is  certain  that  the  agitation  will  be  kept  up  until 
the  question  is  settled  by  a  thoro  ventilation  either 
before  the  Court  or  in  Congress,  probably  the  latter, 
now  that  the  Federal  Trade  Commission  has  made  its 
recommendations  to  the  latter  body.  The  matter 
would  have  reached  a  crisis  and  settlement  before  this 


GOOD-WILL  AND  PRICE  MAINTENANCE      159 

time,  had  not  conditions  been  so  radically  changed 
by  the  war.  With  the  return  of  peace  and  the  release 
of  factories  and  machinery  for  peace  production, 
there  is  certain  to  be  a  renewal  of  the  pitched  battle 
between  the  two  forces:  on  one  side,  the  trade-mark 
owners,  small  retailers  and  national  advertising  me- 
diums ;  on  the  other  side  most  of  the  local  department 
stores,  chain  stores,  mail-order  houses  and  local  news- 
papers. On  the  issue  of  the  dispute  depends  the 
character  of  future  marketing  and  merchandising. 

REVIEW 

Distinguish  between  price  maintenance  and  price  manipula- 
tion. 

AMiat  arguments  do  manufacturers  advance  in  defense  of  price 
maintenance  ? 

Why  do  chain  stores,  department  stores  and  large  retailers 
oppose  price  maintenance? 

How  has  price-cutting  tended  to  raise  the  prices  of  nationally 
advertised  goods? 

What  is  the  history  and  present  status  of  price  maintenance 
in  the  courts  of  this  country? 


CHAPTER  XIII 

REACHING  THE  MARKET  AND  THE  COMPLETE 
CAMPAIGN 

1.  Absence  of  standards  in  selling, — Selling  has 
never  been  standardized  in  detail ;  few  of  its  practices 
have  been  reduced  to  rule.  Except  in  a  small  min- 
oritj^  of  cases,  even  with  many  facts  in  hand  about  the 
trade,  the  market,  the  product,  it  is  impossible  to 
say  with  definiteness  what  method  of  selling  should 
be  followed  in  order  to  insure  a  desired  result.  If 
all  the  factors  in  the  market,  including  our  customers 
and  our  competitors,  acted  according  to  a  system, 
and  we  knew  the  system,  success  would  be  more  or 
less  of  a  scientific  certainty.  That  is  far  from  being 
the  case.  A  few  broad  tendencies  are  recognized  by 
anybody;  others  may  be  discovered  by  study,  obser- 
vation and  the  use  of  statistics — outside  of  these,  all 
is  subject  to  doubt  and  change. 

2.  Correct  judgment  necessary  to  marketing, — All 
known  facts  of  moment  may  be  gathered  by  the  man- 
agement of  a  company  and  applied  in  settling  a  sales 
policy  and  yet  because  some  one  factor  is  neglected 
or  overemphasized  the  results  may  be  disastrous.  A 
manufacturer,  say,  has  discovered  an  apparent  need 
for  his  product  among  a  certain  class  of  people.     The 

160 


COMPLETE  CAMPAIGN  161 

dealers  approached  have  shown  a  willingness  to  handle 
the  goods.  To  a  cursory  investigation,  the  com- 
petition in  the  field  appears  negligible.  Thereupon, 
the  manufacturer  adopts  a  certain  selling  method,  only 
to  find  later  a  new  competitor  in  the  field  with  ample 
reserves,  more  elaborate  plan  and  larger  sales  force. 
His  investigation  has  failed  to  uncover  this  pertinent 
piece  of  information.  In  consequence,  his  selling 
method  may  have  to  be  fundamentally  changed  to 
meet  the  changed  situation. 

Too  much  information,  therefore,  cannot  be  col- 
lected preliminary  to  a  marketing  campaign.  The 
greater  the  amount  of  data  and  the  more  exact  it 
is,  the  less  likelihood  there  is  of  wrong  decisions. 

3.  Shopping  lines  and  convenience  goods  defined, — 
The  various  trade  channels  thru  which  goods  may  be 
marketed  have  already  been  described  in  Chapter  V. 
All  goods  using  these  channels  have  been  divided 
broadly  speaking  into  two  groups,  known  as  "shop- 
ping" goods  and  "convenience"  goods.  This  classi- 
fication was  made  by  Mr.  C.  C.  Parlin  of  the  Com- 
mercial Research  Division  of  the  Curtis  Publishing 
Company.  Mr.  Parlin  defines  shopping  goods  as 
those  bought  only  after  a  comparison  of  values  has 
been  made  in  several  stores.  In  this  class  are  the 
higher  priced  goods  which  women  purchase,  such  as 
ready-made  clothing,  millinery,  furniture,  rugs,  car- 
pets and  the  better  grade  of  dress  goods. 

Convenience  goods  differ  from  shopping  lines  in 
that  they  are  bought  without  comparison  of  values. 


162  MARKETING 

They  are  purchased  at  one  store  instead  of  at  another : 

(1)  because  of  the  convenient  location  of  the  store; 

(2)  on  the  impulse  of  the  moment,  suggested  perhaps 
by  the  sight  of  the  article  in  the  store  window;  (3) 
on  account  of  custom  which  is  strong  enough  to  hold 
the  trade  of  a  customer  after  it  has  once  been  attract- 
ed; (4)  because  of  the  desire  to  buy  a  special  brand 
which  is  on  sale  in  certain  stores. 

The  classification  applies  to  the  goods  bought  by 
both  sexes.  In  purchasing  office  furniture  or  an  auto- 
mobile, for  example,  a  man  compares  values  closely. 
In  other  words,  he  goes  shopping.  In  the  ordinary 
sense  of  the  word,  however,  a  man  does  not  shop ;  he 
selects  his  store  for  the  same  reasons  that  a  woman 
selects  a  store  in  which  to  buy  convenience  goods 
and  buys  in  that  store  whatever  suits  his  purpose. 

4.  Shopping  centers, — Some  communities,  Mr. 
Parlin  found,  attracted  more  trade  from  surrounding 
districts  than  they  lost  to  other  communities.  These 
towns  or  sections  of  a  city  he  calls  shopping  centers. 
Each  shopping  center  is  likely  to  have  three  or  more 
department  stores  or  similar  establishments  handling 
shopping  lines  because  women  apparently  like  to  com- 
pare values  in  at  least  three  stores  before  making 
purchases.  If  the  shopping  center  is  a  large  one 
and  there  are  more  than  three  department  stores  in 
it  they  can  usually  be  classified  in  groups  of  three, 
according  to  the  grade  of  goods  carried  and  the  people 
appealed  to. 

5.  Marketing    shopping    lines    and    convenience 


COMPLETE  CAMPAIGN  163 

goods, — For  the  manufacturer  this  seemingly  natural 
division  of  products  into  shopping  lines  and  conven- 
ience goods  holds  special  interest.  It  gives  him  one 
more  guide  to  his  market.  If,  for  example,  he  is 
making  a  class  of  goods  that  figure  as  a  shopping  line, 
it  may  prove  wiser  policy  for  him  to  confine  the  sale 
of  his  product  to  one  of  the  three  competing  stores 
in  each  shopping  center,  where  he  will  get  exclusive 
and  special  attention,  than  to  scatter  the  goods  thru 
all  three,  unless  he  is  a  heavy  advertiser  and  can  be 
indifferent  to  dealer  cooperation.  In  this  way  he 
can  be  reasonably  sure  that  all  shoppers,  before  they 
decide  to  purchase,  will  visit  the  store  where  his  goods 
are  on  sale.  Exclusive  agencies  of  course  make 
larger  purchases  than  individual  dealers  under  the 
ordinary  system. 

Department  stores  depend  almost  entirely  on  the 
trade  of  women.  They  are  usually  more  anxious 
to  handle  shopping  lines  for  this  reason.  The  great 
majority  of  convenience  goods  are  sold  in  local  spe- 
cialty shops.  To  choose  this  kind  of  agency  for  the 
marketing  of  shopping  lines  would  be  unusual  and 
its  value  problematical. 

Sales  of  convenience  goods  are  increased  by  placing 
them  in  as  many  stores  as  possible.  They  are  ordin- 
arily marketed  thru  jobbers  because  the  majority 
of  retailers  purchase  only  in  small  quantities.  The 
department  stores  handle  many  convenience  goods, 
people  visit  the  stores  primarily  to  shop  and  buy  con- 
venience goods  only  incidentally. 


164  MARKETING 

6.  Determining  price, — Of  equal  importance  within 
the  trade  channels  selected  is  the  determination  of  the 
price  which  a  manufacturer  shall  charge  for  his  pro- 
duct. By  some  the  setting  of  a  right  price  is  consid- 
ered the  very  first  step  in  a  sales  campaign;  upon 
it  depend  gross  profits,  from  which  are  taken  all  the 
expenses  of  selling.  Upon  it  also  depend  the  dis- 
counts of  jobber  and  retailer,  and,  therefore,  their 
attitude  towards  the  goods. 

Price  in  the  last  analysis  is  governed  by  the  eco- 
nomic law  of  demand  and  supply.  But  in  arriving 
at  a  price  for  his  product,  the  manufacturer  must 
have  something  more  tangible  to  build  upon  than 
estimates  as  to  the  volume  of  future  trade.  One  kind 
of  price,  for  example,  a  railroad  fare,  is  based  upon 
the  principle  of  charging  "all  the  traffic  will  bear"; 
another  bases  it  upon  cost,  adding  to  that  a  fair  profit 
to  himself  and  an  allowance  for  selling  and  adver- 
tising. Keen  competition  among  manufacturers  has 
put  an  end  generally  to  extravagant  profits  per  unit. 
The  need  for  building  up  good-will  and  discouraging 
future  competition  is  steadily  narrowing  the  margin 
between  cost  and  selling  price. 

7.  Components  of  price. — The  price  set  by  the 
manufacturer  covers  a  number  of  elements.  First, 
it  must  cover  the  cost  of  production.  The  unit  cost 
of  manufacture  is  usually  at  a  minimum  when  the 
factory  is  running  at  capacity.  A  low  selling  price 
may,  therefore,  actually  prove  more  profitable  than 


COMPLETE  CAMPAIGN  165 

a  higher  one  which  restricts  sales  and  uses  only  a  part 
of  the  factory's  facilities. 

Expenses  of  selling  must  also  be  included  in  the 
selling  price.  Selling  expenses  depend  on  trade 
channels  chosen  by  the  manufacturers  and  include 
such  items  as  discounts  to  jobbers,  retailers  and  other 
middlemen,  the  cost  of  maintaining  a  sales  force  and 
the  cost  of  advertising. 

One  of  the  most  vital  considerations  is  the  element 
of  profit  desired.  The  net  amount  left  after  cost 
of  manufacture  and  all  selling  expenses  have  been 
deducted  must  be  sufficient  recompense  to  the  manu- 
facturer for  the  risk  he  has  taken  to  engage  in  busi- 
ness and  the  investment  he  has  made. 

8.  What  determines  profit, — The  manufacturer's 
profits  are  not  secured  as  a  result  of  plant  efficiency 
alone.  The  nature  of  the  field  in  which  he  operates 
and  the  competition  there  are  also  factors.  Consider- 
ations over  w^hich  he  has  no  control  may  keep  the 
business  small  and  preclude  large  profits ;  if  he  would 
expand  his  business,  he  must  add  new  lines,  new  terri- 
tory or  new  classes.  The  nature  and  value  of  the 
service  rendered  also  exerts  an  important  influence 
upon  profits.  If  the  public  values  a  service  highly 
it  will  pay  generously  for  it.  An  automobile,  a  vac- 
uum cleaner  or  a  talking  machine  sells  at  a  high  price 
with  ample  profit  to  the  manufacturer  and  dealer 
because  it  renders  a  service  believed  to  be  of  great 
value  to  the  public  while  a  kitchen  utensil  or  a  cake 


166  MARKETING 

of  laundry  soap  sells  at  a  low  price  and  returns  a 
small  individual  profit  for  the  reason  that  no  one 
values  so  highly  the  service  which  either  of  these  com- 
modities performs. 

A  second  factor  in  the  production  of  profits  is  the 
purchasing  ability  of  the  consumer.  What  can  the 
prospective  customer  be  made  to  pay  for  the  article? 
Every  manufacturer  is  naturally  interested  in  secur- 
ing the  largest  effective  sales,  but  at  what  figure  must 
the  selling  price  be  placed  to  yield  them  and  yet  insure 
a  profit?  The  market  for  a  fountain  pen  is  the  gen- 
eral public.  If  the  fountain  pen  manufacturer  wants 
to  secure  large  sales  he  must  narrow  his  rate  of  profit. 
A  player-piano,  on  the  other  hand,  going  to  the  homes 
of  well-to-do  people  only,  may  be  priced  high  to  cover 
a  large  selling  expense  and  proportionately  large 
profit. 

The  dominant  factor  in  pricing  is  the  influence  of 
competition.  The  number  of  competitors  in  the  field, 
the  prices  charged  by  them,  the  possibility  of  future 
competition — all  these  things  closely  restrict  the  man- 
ufacturer in  naming  his  price.  He  must  not  make  it 
so  high  as  to  invite  rivalry,  nor  so  low  as  to  weaken 
himself.  In  practice,  he  usually  finds  out  first  what 
competitive  conditions  will  permit  him  to  charge,  and 
then,  after  settling  the  amount  of  gross  profits  he 
desires,  which  is  also  determined  largely  by  compe- 
tition, he  figures  out  of  this  for  selhng  and  other 
expenses  such  part  of  the  margin  as  he  feels  he  can 
afford;  the  remainder  he  considers  as  profit. 


COMPLETE  CAMPAIGN  167 

9.  Sales  policy, — The  various  influences  which  the 
sales  pohcy  should  bring  under  control  are  sometimes 
not  even  considered  until  the  progress  of  the  mar- 
keting campaign  makes  evident  the  need  of  such  a 
policy.  Then  time,  effort  and  money  are  lost  in  mak- 
ing the  necessary  adjustments.  Sales  policies,  like 
prices,  trade  channels,  selling  methods  and  all  other 
principles  of  marketing  should  be  selected  in  advance, 
so  that  the  campaign,  when  it  is  once  inaugurated, 
may  move  forward  without  interruption  a:nd  at  full 
speed. 

The  more  important  matters  a  sales  policy  is  called 
upon  to  consider  are  credit,  quantity  prices,  fixed 
prices,  guarantees,  and  service. 

10.  Credit, — Every  manufacturer  must  determine 
to  what  extent  he  will  grant  credit.  If  cash  sales  are 
the  custom  in  the  industry,  would  it  be  best  for  him 
to  follow  that  policy,  or  could  he  make  credit  accom- 
modation, in  spite  of  its  increased  expense  and  risk  of 
loss,  a  selling  point  in  getting  business?  Automo- 
biles were  at  first  sold  virtually  on  a  cash  basis.  Some 
manufacturers  now  openly  offer  credit.  Before  com' 
mitting  himself  to  a  policy  of  credit,  whether  this  is 
an  innovation  in  the  line  or  not,  he  will  naturally  con- 
sider the  probable  effect  on  his  business  from  the  at- 
titude of  the  public  and  competition.  Some  industries 
have  suffered  from  an  abuse  of  credit.  It  would  be  a 
mistake  to  adopt  a  sales  policy  that  would  perpetuate 
confusion  and  demoralization,  which  the  whole  trade 
is  endeavoring,  perhaps,  to  bring  to  an  end. 


168  MARKETING 

On  the  other  hand,  if  credit  is  usually  granted  in 
the  industry  and  a  manufacturer  determines  to  put 
his  business  on  a  cash  basis,  he  must  be  willing  to  face 
the  possibility  of  small  sales  at  first  and  slow  develop- 
ment of  business. 

11.  Quantity  prices  and  discounts. — ^lost  manufac- 
turers have  a  scale  of  discounts  for  dealers  who  buy 
goods  in  large  amounts.  In  the  old  system,  such  dis- 
counts were  allowed  only  to  the  jobber;  one  large  dis- 
count was  made  to  jobbers  and  another  smaller  one 
to  dealers.  But  when  the  department  store  came  into 
being,  and  after  it  the  mail-order  house  and  chain 
stores,  all  of  them  often  buying  more  at  a  time  than 
some  jobbers,  most  manufacturers  were  unable,  even 
if  they  desired,  to  resist  the  pressure  for  price  conces- 
sions, regardless  of  what  the  effect  would  be  on  the 
independent  stores  which  bought  only  in  small  quan- 
tities from  the  jobber.  The  effect,  as  previously 
described,  was  demoralizing.  In  consequence,  some 
manufacturers  are  breaking  away  from  the  custom. 
They  realize  that  when  they  give  quantity  discounts 
to  retailers,  they  promote  price-cutting  and  so  cannot 
come  into  court  or  Congress  with  "clean  hands"  and 
demand  price  maintenance,  as  a  champion  of  those 
w^ho  suffer  from  price-cutting  or  defend  such  mainte- 
nance on  the  ground  of  a  necessary  uniformity  in 
price. 

Most  manufacturers  believe  in  quantity  prices. 
They  argue  that  it  costs  the  seller  less  per  dollar  of 
sales  to  make  a  large  sale,  pack  the  order  and  handle 


COMPLETE  CAMPAIGN  169 

the  account.  They  also  point  out  that  the  buyer 
taking  a  large  quantity  at  one  time  relieves  the  manu- 
facturer of  the  burden  of  storing  stock.  The  larger 
buyer,  therefore,  should  be  compensated  for  perform- 
ing the  storage  function.  Finally,  the  givers  of 
quantity  prices  remind  us  that  they  are  customary  in 
nearly  all  forms  of  business  and  that  the  opposition 
to  them  comes  from  a  comparatively^  small  group. 

Manufacturers  who  believe  in  the  one  price  or 
"square  deal"  policy,  without  any  consideration  being 
given  for  buying  in  quantity,  combat  these  arguments. 
They  point  out,  for  example,  that  many  lines  of 
goods  are  subject  to  rapid  deterioration  and  there- 
fore should  not  be  sold  in  large  quantities,  the  public 
holding  both  manufacturer  and  dealer  responsible  for 
spoiled  goods.  The  manufacturer,  they  say,  should 
rather  encourage  minimum  unit  purchases  at  frequent 
intervals.  Quantity  purchases  are  not  advantageous 
unless  the  goods  can  be  sold  at  once.  Storage  costs 
eat  up  profits.  Small  dealers  cannot  move  large 
stocks  rapidly  and,  therefore,  should  not  make  quan- 
tity purchase.  The  only  sound  policy  is  relatively 
small  stocks  and  rapid  turnovers.  iManufacturers 
should  help  dealers  to  realize  this  and  should  cooperate 
with  them  in  carrying  it  out  by  making  the  lowest  price 
possible  to  the  dealers  in  general  and  refusing  to  favor 
a  few  large  buyers  at  their  expense..  The  number  of 
those  who  hold  these  views  is  small,  but  it  is  growing. 

12.  Free  deals  and  secret  discounts, — Instead  of 
giving  extra  discount  or  shading  the  price  on  these 


170  MARKETING 

goods,  manufacturers  in  some  lines,  groceries  and 
drugs  especially,  give  a  bonus  to  buyers  in  the  form  of 
free  goods.  This  bonus  is  called  a  "free  deal."  Gen- 
erally only  weak  companies  do  it,  since  it  is  a  direct 
incitement  and  suggestion  to  the  dealer  to  cut  the  re- 
tail price.  But  it  is  used  or  was  used  in  the  period 
before  the  war  by  manufacturers  in  breaking  into  new 
territory  or  opening  up  a  new  line.  A  specialty 
pnanuf acturer,  in  order  to  induce  a  retail  grocer  to  buy 
a  new  brand  of  canned  goods,  might  offer  a  case  of 
goods  free  with  every  ten  cases  bought.  Or  a  drug- 
gist could  obtain  with  every  quarter  gross  of  some 
proprietary  article  an  extra  free  dozen.  Sometimes 
the  offer  takes  the  form  of  a  concession  for  window 
or  store  display.  In  any  case,  it  is  a  price  re- 
duction in  effect  without  being  so  on  paper.  Some- 
times it  is  used  to  effect  price  reduction  in  a  re- 
stricted territory  without  going  to  the  bother  of 
publishing  a  new  list.  This  practice  had  the  dis- 
advantage of  making  dealers  suspect  list  prices  and 
hold  off  for  "deals."  In  other  words,  it  made  selling 
harder.  When  the  "deals"  were  offered,  dealers 
often  loaded  up  with  too  much  so  that  the  retail  price 
had  to  be  cut  to  make  it  move.  A  large  number  of 
trade  organizations  had  already  protested  against  this 
practice,  when  the  Federal  Trade  Commission  and 
War  Industries  Board  officially  frowned  upon  it. 

Secret  discounts  or  "inside"  prices  of  any  kind  now 
encounter  severe  criticism.  The  manufacturer  who 
offers  them  is  distrusted  by  dealers  and  runs  the 


COMPLETE  CAMPAIGN  171 

danger  of  coming  in  conflict  with  the  Federal  Trade 
Commission.  With  the  advance  of  trade  ethics  one 
price  to  all  who  buy  under  the  same  conditions  is  being 
recognized  as  the  only  fair  policy. 

13.  Guarantees, — The  manufacturer's  sales  policy 
is  likewise  influenced  by  what  attitude  he  takes  in  re- 
gard to  guaranteeing  his  goods  and  accepting  "re- 
turns." Most  trade-mark  owners  stand  as  squarely 
behind  their  goods  as  the  nature  of  the  goods  permit, 
thus  protecting  the  dealer  as  well  as  the  consumer. 
This  is  an  absolute  necessity.  In  doing  it,  many 
manufacturers  and  industries  went  too  far  at  first. 
Gloves,  for  example,  were  once  guaranteed  absolutely 
without  restriction.  The  first  result  was  that  re- 
tailers, freed  from  any  responsibility  to  the  consumer, 
relaxed  their  care  in  fitting,  in  explaining  how  to  put 
on  and  take  off  the  gloves  and  furthermore  put  no 
limit  on  the  time  in  which  they  might  be  returned. 
They  pushed  the  guarantee  for  all  it  was  worth.  The 
second  result  was  that  the  consumers,  also  freed  from 
responsibility,  relaxed  their  care  of  the  gloves  and 
when  they  ripped  or  split  under  abuse  demanded  a 
new  pair  free.  Manufacturers  were  swamped  with 
returns.  They  were  obliged  to  make  the  guarantee 
less  general  and  reeducate  the  public  on  the  subject. 
Many  other  industries  had  somewhat  similar  experi- 
ences. Printed  guarantees  seem  to  be  falling  into 
disfavor  with  dealers  and  consumers  because  of  the 
many  restrictive  provisions  and  qualifying  clauses 
which  manufacturers  have  felt  obliged  to  insert  for 
v_i3 


172  MARKETING 

their  own  protection  so  that  when  goods  which  are 
evidently  defective  are  returned  to  the  manufacturer 
it  is  found  that  the  guarantee  does  not  cover  them. 
Rather  than  run  the  risk  of  losing  consumer  good-will, 
many  manufactm-ers  issue  no  printed  guarantees  with 
their  goods,  but  advertise  that  the  goods  are  guaran- 
teed as  to  workmanship  and  material  and,  when  claims 
of  defects  in  them  are  made,  adjust  each  case  on  its 
merits,  taking  care,  however,  to  tip  the  scales  in  favor 
of  the  customer. 

14.  Service, — The  extent  of  service  is  another  thing 
which  must  be  decided  by  the  manufacturer  in  laying 
out  a  sales  policy.  Of  late  years  service  has  been  in- 
creasingly emphasized  by  progressive  manufactui'crs 
until  it  has  now  become  the  big  word  in  modern  busi- 
ness. It  is  made  to  cover  everything  from  speed  in 
filling  dealers'  orders  to  giving  complete  satisfaction 
to  consumers.  Many  manufacturers  have  an  adver- 
tising service  for  dealers.  Others  have  elaborate  serv- 
ice departments  to  keep  customers  satisfied.  This  is 
especially  true  of  companies  marketing  mechanical 
goods  like  typewriters  and  automobiles.  The  auto- 
mobile service  station  is  an  expression  of  the  idea. 
JNIany  truck  manufacturers  before  the  war  gave  so 
much  service  that  new  sales  were  often  liabilities. 
Most  periodicals  help  their  advertisers  to  secure 
greater  returns  from  their  advertising  expenditures. 
In  the  technical  field,  especially,  some  manufacturers 
provide  architects,  builders,  and  engineers  with  data 
on  their  materials.     A  furnace  manufacturer,  on  re- 


COMPLETE  CAMPAIGN  173 

quest,  submits  complete  plans  of  furnace  installation 
in  any  house,  without  placing  the  inquirer  under  any 
obligation  to  accept  the  plans.  Service  of  this  kind 
is  often  expensive  and  in  the  end  must  be  justified  in 
sales. 

15.  Preparing  budgets  before  marketing. — Before 
a  manufacturer  starts  upon  a  marketing  campaign 
he  should  provide  himself  with  a  carefully  prepared 
budget  of  estimated  receipts  and  expenditures.  A 
typical  budget  includes  the  following  items;  tabula- 
tion of  complete  expense  balanced  against  returns 
from  90  per  cent  of  the  proposed  first  year's  output; 
detail  of  manufacturing  expense;  detail  of  sales  or- 
ganization expense ;  detail  of  advertising  expense ;  de- 
tail of  expected  volume  of  sales  with  basis  of  estima- 
tion; detail  of  possible  lesser  and  greater  volume  of 
sales,  with  accompanying  scales  of  graduated  expense 
and  returns;  detail  of  administrative  financing  of  the 
proposition. 

If  a  manufacturer  is  analyzing  a  business  already 
established  he  can  start  with  definite  facts  regarding 
present  costs  and  needs  to  estimate  only  the  expected 
increase  in  business  and  the  cost  of  obtaining  it. 

The  manufacturer  who  is  entering  a  field  of  business 
is  forced  to  resort  to  estimates  for  all  costs  except 
when  he  is  fortunate  enough  to  learn  the  manufactur- 
ing and  selling  costs  of  a  competing  line.  These  esti- 
mates are  not  easy  to  make,  but  they  constitute  per- 
haps the  most  important  single  item  of  the  plan  of 
campaign.     Many  a  marketing  campaign  has  run  on 


174.  MARKETING 

the  rocks  because  of  the  lack  of  this  information.  The 
costs  of  getting  business  may  have  proved  greater  than 
any  reasonable  expectation  of  sales  would  warrant. 
Manufacturing  costs  may  not  have  been  adequately 
studied  before  prices  and  profits  were  determined. 
Sufficient  capital  may  not  have  been  available  to  tide 
the  manufacturer  over  an  emergency,  or  a  study  of 
the  finances  of  the  company  looking  to  proper  provi- 
sion for  the  future  may  have  been  neglected  or  over- 
looked. The  failure  to  consider  any  one  of  these  im- 
portant items  necessary  to  the  marketing  plan  of  cam- 
paign will  lessen  its  chances  for  success. 

16.  Cooperation  with  dealers, — A  dealer  looks  to 
the  manufacturer  and  his  goods  for  three  things — 
salability  in  the  goods,  a  chance  to  make  a  good  profit 
on  them,  and,  if  possible,  cooperation  from  the  manu- 
facturer in  moving  them.  The  sagacious  manufac- 
turer, of  course,  aims  to  satisfy  him  on  all  three  heads 
in  order  to  have  his  good-will  and  active  cooperation. 
But  all  manufacturers  are  not  far  sighted.  None 
would  attempt  to  market  an  unsalable  article,  not  a 
few  err  in  providing  a  reasonable  profit  for  the  dealer, 
and  very  many  offer  a  kind  of  cooperation  the  dealer 
does  not  want  and  cannot  accept.  In  planning  dealer 
helps,  window  trims  and  other  cooperative  features 
a  manufacturer  should  be  careful  to  ascertain  what 
dealers  like  and  will  use  and  what  they  do  not  want 
and  will  not  use.  The  leading  advertisers  take  pains 
to  do  that  before  plunging  into  an  expense  which  may 


COMPLETE  CAMPAIGN  175 

run  into  tens  of  thousands  of  dollars  on  one  item  alone, 
and  other  advertisers  to  whom  a  few  hundred  or  thou- 
sand dollars  is  just  as  important  can  very  easily,  if 
they  wish,  take  the  same  trouble. 

17.  Sales  records, — Finally,  the  plan  of  campaign 
should  provide  for  complete  records  of  everything  that 
is  done  and  the  results  obtained.  Plans  should  be 
made  which  would  provide  for  recording  the  exact 
cost  of  every  phase  of  salesmen's  activities,  every  dif- 
ferent form  of  advertising,  including  the  cost  of  each 
advertisement  and  the  cost  of  sales  and  advertising 
administration.  Records  should  be  kept  of  total  mar- 
keting expense,  subdivided  as  much  as  is  desirable, 
of  the  sales  attributable  to  the  different  methods  of 
sales  stimulation,  of  the  consumption  of  the  product 
by  individual  buyers,  by  towns,  salesmen's  territories 
and  other  units.  Records  should  be  kept  also  of  new 
profits  made  from  each  form  of  selling  effort  in  each 
subdivision  of  the  market,  and  of  comparative  state- 
ments of  cost,  sales,  and  profits  for  successive  years 
shown  in  as  much  detail  as  is  deemed  advisable.  In 
brief,  records  of  every  kind  should  be  kept  which  will 
enable  the  manager  of  the  business  to  know  exactly 
where  the  business  stands,  what  is  being  done  to  stimu- 
late it,  the  cost  of  stimulation  and  the  results  obtained. 
From  these  data  he  learns  where  to  pull  down  and 
where  to  build  up.  To  know  where  it  is  going,  busi- 
ness must  have  complete  records. 


176  MARKETING 


REVIEW 


Do  you  understand  the  meaning  of  the  classification  of  all 
goods  into  "shopping"  and  "convenience"  goods?  Where  is  each 
class  usually  to  be  found? 

How  shall  a  manufacturer  determine  what  price  he  shall  put 
upon  his  goods? 

What  outside  factors  tend  to  limit  the  percentage  of  profit  a 
manufacturer  may  figure  on  making? 

Name  four  or  five  factors  Mhich  the  manufacturer  ought  to 
consider  before  arranging  his  sales  policy. 

What  is  there  to  be  said  in  favor  of  quantity  discounts? 
Against  them?  How  have  some  manufacturers  overdone  the 
nxatter  of  guarantees? 


PART  II 
MERCHANDISING 


MERCHANDISING 

CHAPTER  I 

THE  JOBBER 

1.  Scope  of  treatment. — Merchandising,  as  before 
said,  is  trading ;  that  is,  buying  goods  and  selling  them 
again  without  making  any  essential  change  in  their 
character.  The  selling  problems  and  practices  of 
merchants,  whether  wholesale  or  retail,  are  very  like 
the  marketing  problems  and  practices  of  manufac- 
turers which  we  have  just  been  considering.  The 
buying  habits  of  the  two  divisions  are,  however,  quite 
different:  the  manufacturer  has  to  prepare  his  goods 
for  the  market,  while  the  merchant  buys  his  in  a  salable 
state.  It  is  true  that  all  wholesalers  in  some  degree 
and  also  the  largest  retailers  exert  a  very  great  influ- 
ence over  the  preparation  of  the  goods  they  accept, 
even  to  the  point  of  dictating  quality,  style,  pack* 
aging,  label,  color  and  size,  but  their  problem  in  get- 
ting these  is  simple  compared  with  the  problem  of 
making,  assembling,  designing  or  otherwise  preparing 
the  same  goods  for  the  market.  As  buying,  under 
modern  market  conditions,  is  first  influenced  and  de- 
termined by  selhng  considerations,  we  will  give  our 
attention  primarily  to  the  latter,  in  connection  with 

179 


180  MERCHANDISING 

the  market  factor  standing  next  to  the  manufacturer, 
namely,  the  jobber. 

2.  What  are  jobbing  lines? — All  manufactured 
goods  we  know  are  not  distributed  thru  jobbers.  In 
some  lines  the  jobber  is  losing  importance;  in  others 
he  never  was  important.  In  at  least  four  great  staple 
lines,  however,  he  maintains  the  important  position 
that  he  has  held  for  many  years.  These  lines  are 
groceries,  hardware,  dry-goods,  and  drugs.  In  each 
of  them  the  retail  dealer  must  carry  a  great  variety 
of  goods,  prepared  by  many  different  manufacturers. 
These  conditions  give  the  jobber  an  opportunity  for 
usefulness,  in  fact,  practically  necessitate  the  service 
he  performs,  and  the  goods  handled  are  commonly 
known  as  "jobbing  lines."  Not  all  the  business  in 
so-called  jobbing  lines  passes  thru  jobbers,  but  job- 
bing is  the  normal  channel  and  any  departure  from  it 
is  made  only  for  the  most  compelling  reasons. 

3.  What  is  the  jobber's  pay? — His  compensation  is 
generally  not  so  great  as  is  often  supposed.  For  in- 
stance, an  article  intended  to  be  sold  to  retailers  at 
$4.00  a  case  may  be  billed  to  the  jobber  at  "$4.00  less 
10  per  cent."  The  jobber  pays  $3.60  for  this  case 
of  goods,  and  sells  it  for  $4.00;  hence  forty  cents  is 
his  gross  profit  on  the  transaction.  He  handles  many 
articles,  particularly  in  the  grocery  trade,  on  this  nar- 
row margin.  Sometimes  his  profit  is  less.  A  well- 
known  brand  of  widely  advertised  soap,  for  example, 
is  handled  by  the  jobber  for  only  a  trifle  more  than 
eight  per  cent  gross  profit.     In  other  lines  the  profit 


THE  JOBBER  181 

is  larger,  running  sometimes  as  high  as  25  per  cent. 
It  has  been  a  charge  brought  against  the  jobbers,  par- 
ticularly of  the  grocery  trade,  that  where  they  ex- 
tended large  credit  and  had  their  retail  customers 
practically  in  their  power,  many  of  them  were  in  the 
habit  of  taking  50,  75  and  even  100  per  cent  profit. 
Figures  are  not  available  to  show  the  average  jobber's 
gross  profit  on  all  lines  of  goods,  but  probably  in  the 
grocery  trade  it  is  not  greatly  in  excess  of  15  per  cent. 
Out  of  this  he  must  pay  the  expenses  of  conducting 
his  business,  ranging  between  6  per  cent  and  15  per 
cent  of  his  sales ;  he  must  earn  a  return  on  the  capital 
invested,  and  he  must  have  something  left  as  net  profit 
if  he  is  to  continue  to  run  the  risks  of  his  calling.  In 
other  lines  of  trade,  however,  the  jobber's  profit  is 
greater. 

4.  Jobber  and  retailer. — 'Wliat  return  does  the  job- 
ber make  for  what  he  is  paid?  The  jobber's  service 
is  two-sided,  it  is  given  to  both  manufacturer  and  re- 
tailer. Altho  the  fact  that  the  jobber  lowers  the  cost 
of  wholesale  distribution  of  many  manufactured  ar- 
ticles is  of  importance,  perhaps  his  chief  service  is  to 
make  possible  the  existence  of  the  hundreds  of  thou- 
sands of  neighborhood  retail  stores  which  our  buying 
habits  demand.  The  best  way  to  understand  what 
the  jobber  does  for  the  retailer  is  to  imagine  how  the 
retailer  would  fare  without  him.  A  typically  success- 
ful store  of  the  smaller  sort — a  neighborhood  grocery 
store,  for  example — has  on  its  shelves  three  or  four 
hundred  different  kinds  or  brands  of  goods  made  by  a 


182  MERCHANDISING 

hundred  or  more  different  manufacturers  and  their 
brands  are  distributed  by  three  or  four  jobbers. 
Suppose,  as  suggested  in  Chapter  XIII  of  the  pre- 
ceding section  on  "jNIarketing,"  that  all  the  jobbers 
are  eliminated  overnight,  and  a  retail  merchant  wakes 
up  some  morning  to  find  he  must  buy  every  item  in 
his  stock  direct  from  the  manufacturer.  What  would 
he  do?  Some  of  the  difficulties  under  w^hich  the  mer- 
chant would  labor  in  buying  direct  are  given  in  that 
chapter  on  "Selling  to  the  Retailer,"  .but  they  are 
there  considered  with  the  manufacturer's  problems  in 
mind.  Now  we  will  dwell  on  them  briefly  from  a 
point  of  view  of  the  retailer  himself. 

5.  DifficuUy  in  keeping  complete  stocks, — The  first 
difficulty  of  the  retailer  in  such  cases  would  be  in  keep- 
ing complete  stocks.  When  he  bought  from  a  job- 
ber, he  kept  a  memorandum  of  needed  supplies,  and 
gave  a  lump  order  w^hen  the  jobber's  salesman  made 
his  rounds.  Even  with  this  easy  method  of  ordering, 
the  retailer  had  previously  found  it  hard  work  to  have 
always  on  hand  a  supply  of  even  the  common  staples. 
With  no  jobber  to  supply  him,  the  necessity  of  con- 
stant reordering  from  a  hundred  or  more  different 
manufacturers  would  be  a  tremendous  obstacle  in  the 
retailer's  road  to  success  and  only  an  elaborate  sys- 
tem of  perpetual  inventories  and  purchasing  methods 
would  enable  him  to  keep  up  with  his  needs  and  that 
would  be  prohibitively  expensive. 

6.  Necessity  of  seeing  many  salesmen, — IVIoreovcr, 
the  time  spent  in  seeing  the  salesmen  of  several  hun- 


THE  JOBBER  183 

dred  manufacturers  or  in  ordering  from  their  catalogs 
would  be  enormous.  Even  under  the  jobbing  system, 
the  retailer  found  that  a  considerable  part  of  his  time 
was  taken  up  with  seeing  competing  jobbers'  repre- 
sentatives and  the  salesmen  of  the  comparatively  small 
number  of  manufacturers  that  sell  direct.  With  the 
jobber  eliminated,  he  would  have  to  employ  many  re- 
sponsible buyers  and  only  a  store  w^th  a  large  trade 
could  possibly  do  that  and  survive. 

7.  Unbalanced  stocks, — Without  the  jobber's  serv- 
ice, the  retailer  would  have  great  difficulty  in  keeping 
a  well-selected  and  well-balanced  stock.  Without 
specific  knowledge  of  the  quality  and  selling  value  of 
every  competing  line  in  his  stock,  he  would  be  im- 
portuned constantly  by  a  horde  of  salesmen  to  stock 
large  quantities  of  one  line  at  the  expense  of  another. 
One  of  the  greatest  services  which  the  jobber  rendered 
him  was  to  enable  him  to  select  a  well-rounded  stock 
of  standard  goods.  His  jobbers  were  keenly  aware 
of  the  necessity  of  cultivating  his  continued  good-will; 
they  knew  that  their  own  success  depended  on  his  and 
that  of  their  other  customers ;  they  knew  that  the  secret 
of  retail  prosperity  was  largely  a  matter  of  minimum 
stocks,  quick  turnover,  and  frequent  purchases. 
Xone  of  the  multitude  of  competing  manufacturers 
could  have  the  solicitude  for  the  retailer's  continued 
success  that  the  jobber  had.  They  would  all  be  pull- 
ing against  one  another.  The  jobber  ordinarily  did 
not  push  any  one  kind  of  goods.  He  tried  to  build 
up  the  retailer's  business  as  a  whole,  and  he  rendered 


184  MERCHANDISING 

valuable  service  by  aiding  him  with  all  kinds  of  buy- 
ing and  selling  plans. 

8.  Need  of  more  capital, — With  the  jobber  elimi- 
nated the  retailer  would  probably  have  to  purchase  in 
much  larger  quantities  than  when  he  bought  from  the 
jobber,  because  the  solicitation  and  handling  of  petty 
orders  does  not  pay  the  small  one-line  manufacturer. 
The  dealer  would,  therefore,  require  more  capital  to 
do  business  than  was  previously  needed.  If  his  busi- 
ness remained  of  the  same  size,  he  would  have  more 
capital  tied  up  in  goods,  could  turn  it  less  frequently, 
and  consequently  would  make  less  profit.  The  al- 
ternative presented  to  him  would  be  either  to  go  out  of 
business  or  increase  his  prices. 

9.  More  storage  space  required, — Larger  purchases 
in  each  line  would  necessitate  increased  storage  space, 
and  thus  increase  his  costs  and  diminish  his  turnover 
and  profits,  or  force  him  to  advance  his  prices.  The 
small  dealer  now  relies  on  the  jobber  to  carry  his  sur- 
plus stock  for  him.  The  warehouse  function  of  the 
jobber  thus  works  to  the  great  advantage  of  manufac- 
turer and  retailer  alike. 

10.  Credit  arrangements  would  cease, — The  strug- 
gling merchant  of  ability  can  usually  find  some  jobber 
to  back  him  until  he  gets  on  his  feet.  In  ever}-  town 
there  are  retailers  who  would  have  to  close  their  doors 
if  it  were  not  for  the  help  given  by  some  jobber.  The 
jobber,  when  he  extends  unusual  credit  to  a  retailer, 
does  so  not  from  mere  good  nature,  but  because  it  is 
good  business  to  develop  customers.     The  manufac- 


THE  JOBBER  185 

turer's  relations  with  the  retailer  are  not  and  cannot 
be  so  close.  Xo  one  retailer  means  so  much  to  a 
manufacturer  as  he  does  to  the  jobber.  The  manu- 
facturer cannot  invest  capital  in  him.  The  retailer 
would  have  to  carry  himself,  or  retire  from  the  field. 

11.  Elimination  of  the  small  dealer. — This  analysis 
of  the  conditions  that  the  retailer  would  have  to  face 
with  the  elimination  of  the  jobber,  clearly  shows  that 
for  the  small  dealer  in  jobbing  lines  the  jobber  is  an 
absolute  necessity.  Without  the  jobber,  a  very  large 
proportion  of  all  retailers  would  have  to  drop  out  of 
bushiess,  and  the  field  would  be  left  to  those  who  are 
large  enough  and  strong  enough  and  backed  by  suf- 
ficient capital  to  do  for  themselves  the  things  which 
the  jobber  now  does  for  them. 

12.  When  the  jobber  is  necessary, — It  should  be 
remembered  that  what  has  here  been  said  of  the  serv- 
ice rendered  by  the  jobber  to  the  retailer  applies  only 
to  these  small-unif,  fast-moving,  so-called  jobbing 
lines.  If  a  store  can  buy  its  entire  stock  of  goods 
from  a  few  manufacturers,  the  jobber's  service  is  not 
important.  This  is  the  case  with  stores  handling  lines 
of  shoes,  furniture,  clothing,  etc.  The  elimination  of 
the  jobber  would  not  greatly  handicap  these  stores, 
because  in  perhaps  the  majority  of  cases  even  the 
smallest  of  them  are  already  purchasing  direct  from 
the  manufacturer. 

It  should  also  be  remembered  that  we  are  not  con- 
sidering the  advantages  and  disadvantages  of  the  pres- 
ent system  of  multitudinous  small  stores  scattered 


186  MERCHANDISING 

everywhere  thruout  the  country,  and  of  the  present 
system  of  independent,  strictly  competitive,  relatively 
small  miits  of  manufacturers.  It  is  possible  that  with 
fewer  and  much  larger  retail  stores  and  with  com- 
binations among  manufacturers  for  the  purpose  of 
more  economical  marketing,  there  would  be  less  neces- 
sity for  the  jobber's  services.  Under  present  condi- 
tions, however,  it  cannot  be  denied  that  the  jobber  is 
essential  to  the  existence  of  the  great  majority  of  re- 
tail stores  in  many  lines. 

13.  Jobbers  service  to  consumer, — Finally,  the 
jobber  serves  the  consumer.  He  permits  the  exist- 
ence of  the  neighborhood  store,  which  is  demanded  by 
our  modern  buying  methods;  he  is  useful  in  creating 
place  and  time  utility;  he  provides  an  economical 
method  of  marketing  for  many  manufacturers,  and 
thereby  keeps  down  prices ;  he  encourages  retail  com- 
petition, increases  retail  efficiency,  tends  to  weed  out 
the  unfit  in  merchandise  and  to  encourage  the  sale  of 
goods  of  quality.  He  touches  the  lives  of  the  public 
in  such  a  variety  of  ways  that,  if  he  were  to  disappear 
from  the  merchandising  field,  we  should  find  ourselves 
seriously  inconvenienced ;  we  should  be  under  the  ne- 
cessity of  abandoning  old  buying  habits  and  forming 
entirely  new  relations  with  the  sources  of  supply  of 
many  of  the  things  that  we  eat  and  wear  and  use. 

]\Iany  people  who  believe  in  the  jobber's  service, 
question  whether  his  function  in  sorting,  crating  and 
uncrating,  packing  and  unpacking,  and  reshipping 
goods  received  by  him  from  the  manufacturer  is  an 


THE  JOBBER  187 

economical  one  for  the  public.  The  suggestion  that 
the  jobber  shall  act  solely  as  a  sales  agent  and  a  col- 
lector, and  not  handle  any  goods  and  also  that  all  his 
orders  be  taken  on  the  "drop  shipment"  basis;  and 
finally  that  the  manufacturer  ship  in  small  amounts 
direct  to  the  retailers  by  parcel  post  were  discussed 
in  the  previous  section  on  "Marketing"  and  need  not 
be  repeated.  Doubtless,  many  reforms  are  possible, 
but  they  have  not  yet  been  made  and  we  are  here  oc- 
cupied with  the  description  of  things  as  they  are  and 
the  reasons  therefor. 

REVIEW 

What  are  the  services  performed  by  the  jobber  for  the  re- 
tailer ? 

In  what  manner  does  the  existence  of  the  jobber  have  an 
economic  influence  upon  the  consumer? 

Under  what  conditions  may  the  jobber  be  eliminated?  What 
is  the  present  tendency? 

What  factors  tend  to  fix  the  percentage  of  profit  which  a  job- 
ber may  make? 


V  — 14 


CHAPTER  II 

MODIFICATION  OF  THE  JOBBER'S  SERVICE 

1.  Manufacturing  jobber  defined, — While  most 
^oods  are  still  marketed  thru  what  has  been  called  the 
"orthodox  type  in  distribution,"  meaning  that  the 
goods  pass  from  the  manufacturer  to  jobbers,  retail- 
ers, and  thence  consumers,  there  are  a  number  of  agen- 
cies in  distribution  in  which  many  of  these  functions 
have  been  combined.  A  notable  example  is  the  manu- 
facturing jobber,  who,  as  the  name  implies,  sells  as 
a  jobber  goods  that  he  has  manufactured  himself,  or 
which  he  has  had  manufactured  for  him  under  his  own 
label. 

2.  Advantages  of  combining  distributive  functions. 
— There  are  certain  economies  which  are  secured  by 
combining  the  functions  of  the  manufacturers  and  the 
jobber.  These  may  vary  according  to  the  nature  of 
the  business  and  the  manner  in  which  it  is  conducted, 
but  in  the  main  they  apply  wherever  manufacturing 
and  jobbing  have  been  combined. 

3.  Economy  in  methods  of  production, — All  the 
principles  of  factory  administration  with  its  resulting 
economies  are  applicable  to  the  business  of  the  manu- 
facturing jobber.  Proper  routing  of  work,  the  use 
of  time  schedules  and  labor-saving  machinery,  the 

188 


JOBBER'S  SERVICE  MODIFIED  189 

adoption  of  standard  methods  of  operation  and  pre- 
mium systems  of  wage  payments  are  only  a  few  of 
the  principles  which  might  be  enumerated.  The  fac- 
tory systems  in  any  one  of  a  dozen  or  more  of  the 
large  wholesale  grocery  concerns  in  the  United  States 
and  Canada  are  illustrations  of  industrial  organiza- 
tion and  management  carried  to  its  highest  state  of 
efficiency. 

4.  Economies  in  stockkeeping, — By  keeping  most 
of  his  stock  in  bulk,  packing  it  and  preparing  it  for 
shipment  only  as  demanded,  the  manufacturing  job- 
ber saves  space,  minimizes  the  number  of  soiled  and 
torn  packages  and  so  arranges  his  storage  facilities 
that  depreciation  and  waste  are  kept  at  a  minimum. 

When  the  manufacturing  jobber  maintains  a  separ- 
ate factory,  he  secures  the  saving  which  comes  from 
large-scale  production.  Altho  the  use  of  this  method 
necessitates  packing  and  warehousing,  it  requires  less 
of  it  than  other  manufacturers  find  necessary,  because 
the  certainty  of  the  outlet  makes  plans  for  production 
more  definite. 

5.  Long  credits  on  private  brands, — The  manufac- 
turing jobber  usually  offers  longer  terms  of  credit 
on  goods  of  his  own  brand  than  on  other  lines.  This 
is  done  as  a  special  inducement  to  encourage  pur- 
chasers. As  the  jobber  is  making  a  larger  profit  on 
his  own  brands  either  thru  the  saving  resulting  from 
manufacturing  or  thru  the  ability  to  get  a  higher  price, 
he  can  afford  to  give  longer  credits.  Moreover,  as  a 
manufacturer,  he  does  not  have  to  give  a  long-term 


190  MERCHANDISING 

credit  to  the  jobbing  department  and  this  saving  can 
be  passed  along  to  the  retailer.  With  both  a  manu- 
facturer's and  a  jobber's  profit  secured  to  him,  the 
manufacturing  jobber  has  a  wider  margin  on  which 
to  base  his  credit  terms. 

6.  Methods  of  organization, — The  manufacturing 
jobber  may  desire  to  keep  the  manufacturing  part  of 
his  business  entirely  separate  from  the  jobbing  end, 
even  going  so  far  as  to  sell  to  other  jobbers.  He  may 
incorporate  the  factory  separately,  keeping  the  same 
officers  as  in  his  jobbing  business.  He  may  instal  a 
complete  cost  system.  If  the  last  mentioned  thing 
is  done,  it  will  be  easy  to  allocate  costs  and  to  deter- 
mine the  cost  of  each  product  at  any  stage  of  produc- 
tion, as  well  as  its  total  cost.  Some  jobbers,  however, 
contend  that  the  complete  separation  of  the  manufac- 
turing and  jobbing  ends  of  a  business  produces  fric- 
tion between  the  two  departments  and  weakens  the 
ability  to  meet  competition. 

Under  another  plan  of  organization,  each  depart- 
ment of  the  jobbing  business  does  whatever  manu- 
facturing it  thinks  advisable.  For  example  in  a 
w^holesale  grocery  concern  the  buyer  for  the  spice  de- 
partment may  decide  to  manufacture  vanilla  extract 
instead  of  buying  it  in  the  open  market.  Manufac- 
turing jobbers  who  put  their  buyers  in  charge  of  the 
manufacturing,  each  for  his  own  department,  insist 
that  considerable  saving  results.  They  believe  that 
a  buyer's  expert  knowledge  of  the  requirements  which 
the  product  must  meet  makes  him  better  able  to  su- 


JOBBER'S  SERVICE  MODIFIED  191 

pervise  the  manufacturing  than  someone  less  famiUar 
with  public  demand.  It  must  be  borne  in  mind,  how- 
ever, that  whenever  manufacturing  and  jobbing  are 
combined  in  one  establishment,  the  type  of  organiza- 
tion resulting  depends  largely  on  the  nature  of  the 
business,  the  size  of  output,  and  similar  considerations. 

7.  Semi-jobber  defined, — A  second  type  of  dis- 
tributive unit  in  which  more  than  one  function  is  com- 
bined is  the  semi-jobber.  This  term  is  applied  to  a 
merchant  who  sells  both  retail  and  wholesale  trade. 
Most  semi- jobbers  begin  with  one  line,  generally  the^ 
retail,  and  later  add  the  other.  In  only  a  few  cases 
has  a  merchant  entered  both  the  wholesale  and  retail 
business  at  the  beginning  of  his  career. 

8.  Why  semi-jobbing  has  developed. — The  devel- 
opment of  a  semi- jobbing  business  has  been  due  to  a 
number  of  reasons.  The  chance  for  the  merchant  to 
make  a  double  profit  has  proved  a  strong  inducement 
to  him  to  undertake  both  branches  of  the  business. 
The  wholesale  merchant  who  adds  a  retail  branch  to 
his  business  may  wish  to.  obtain  a  guaranteed  outlet 
for  his  jobbing  business,  to  conduct  a  service  station 
for  retailers,  to  try  out  new  merchandise  plans,  or  to 
dispose  of  odd  lots,  broken  lots,  or  slow-selling  stock. 

The  retailer  who  adds  the  jobbing  function  to  that 
of  retailing  may  do  so  in  order  to  give  better  service 
thru  more  ready  access  to  a  wholesale  stock ;  or  he  may 
wish  to  establish  agents  and  can  do  so  only  thru  an 
increased  capacity  to  buy  in  jobbing  quantities.  Any 
one  of  the  above  reasons  may  actuate  a  merchant  in 


19«  MERCHANDISING 

taking  on  either  the  wholesaling  or  retailing  functions 
as  the  case  may  be. 

9.  Methods  of  organization, — ^Where  semi- jobbing 
is  carried  on  the  plan  of  organization  is  usually  one 
of  three  different  forms.  In  cases  where  the  retail 
function  is  added  to  a  growing  wholesale  business,  it 
is  usually  handled  by  the  regular  wholesale  organiza- 
tion. The  wholesale  and  retail  stocks  are  not  separ- 
ated, nor  is  there  any  other  hne  of  demarcation  except 
that  the  accounts  are  kept  separately. 

When  jobbing  is  added  to  a  retail  store,  it  is  usu- 
ally handled  by  some  one  specially  employed  to  do  so. 
This  person  takes  wholesale  customers  to  any  depart- 
ment and,  with  the  buyer  of  that  department,  shows 
the  goods  desired.  The  buyer  makes  special  prices 
on  each  article  unless  wholesale  figures  have  been 
made  in  advance.  A  wholesale  business  of  this  na- 
ture is  conducted  by  John  Wanamaker  in  his  Phila- 
delphia and  New  York  stores. 

In  houses  in  which  either  of  these  types  of  organiza- 
tion prevail  there  may  be  a  complete  organization  for 
both  wholesale  and  retail.  Segregation  generally  be- 
gins with  separate  accounts,  then  separate  show- 
rooms ;  later,  a  separate  open  stock  but  with  each  de- 
partment depending  on  the  same  buyer  and  the  same 
reserve  stocks.  Finally  the  retail  manager  feels  the 
need  of  keeping  his  line  complete  by  purchasing  else- 
where and  he  eventually  builds  up  his  own  buying 
force. 

The  third  type  of  organization  is  one  in  which  the 


JOBBER'S  SERVICE  MODIFIED  193 

business  has  been  both  wholesale  and  retail  from  the 
beginning.  Each  member  of  the  sales  force  is  given 
a  loose-leaf  price-hst  of  both  wholesale  and  retail 
prices.  Certain  retail  salesmen  may  be  permitted  to 
handle  requests  for  wholesale  prices,  altho  most  of 
this  business  is  attended  to  in  the  wholesale  offices. 
Names  of  persons  entitled  to  wholesale  prices  are  reg- 
istered and  full  information  necessary  to  conduct  a 
wholesale  business  is  kept  so  that  the  firm's  dual  ac- 
tivities may  not  overlap  and  bring  ill-will  to  the  house. 
Hammacher,  Schlemmer  and  Company  of  Xew  York, 
dealers  in  hardware,  follow  this  type  of  organization. 
10.  Cooperative  jobbing  idea. — The  enormous  de- 
velopment made  by  department  stores,  chain  stores 
and  mail-order  houses  within  very  recent  years  has 
greatly  intensified  competition  for  the  retailer.  Inde- 
pendent retailers  have  watched  the  chain  stores  buy- 
ing direct  from  manufacturers  at  quantity  prices  and 
have  known  them  to  give  large  orders  to  friendly  job- 
bers and  secure  drawbacks  in  the  form  of  split  com- 
missions. This  has  forced  the  independent  retailers 
to  the  conclusion  that  their  safety  lies  in  close  buying 
and  has  taught  them  that  the  way  to  buy  closely  is  to 
band  together  and  buy  direct  from  the  manufacturer. 
By  cooperative  buying,  these  retailers  have  been  able 
to  secure  the  same  quantity  discounts  on  purchases 
as  the  jobbers,  and  by  maintaining  a  central  warehouse 
they  have  also  been  able  to  eliminate  part  of  the  job- 
ber's selling  expenses.  In  addition  to  the  economies 
secured  from  closer  buying,  retailers  have  secured 


194  MERCHANDISING 

other  economies  by  more  efficient  internal  manage- 
ment of  their  businesses. 

The  retailers  seek,  by  combining,  to  appropriate  the 
profit  usually  made  by  a  jobber  in  obtaining  their 
business  and  also  to  save  the  selling  expense  which  all 
jobbers  incur  and  which,  of  course,  has  to  be  figured 
into  the  jobbing  price.  The  profits  that  would  other- 
w^ise  go  to  the  jobber  are  distributed  as  dividends 
among  the  member  stores  or  in  the  form  of  rebates,  or 
in  lower  prices  on  goods  bought. 

11.  Foritis  of  cooperation, — Cooperative  jobbing 
takes  a  number  of  forms.  There  is  the  buying  syndi- 
cate which  is  a  loose  organization  that  supplies  its 
members  with  some  goods  but  not  all.  The  Nebraska 
Federation  of  Retailers  is  an  example.  This  grocery 
organization  plans  to  buy  certain  staples  in  carload 
lots  and  to  sell  them  for  cash  to  the  members  at  cost 
price,  plus  a  small  charge  for  administration. 
Another  organization,  in  another  line,  maintains  an 
exhibition  hall  in  Chicago  where  manufacturers  dis- 
play their  goods.  Retailers  come  to  this  central  of- 
fice and  buy  thru  an  expert  buying  staff  maintained 
by  the  organization.  Each  retailer  is  charged  an  an- 
nual fee  of  five  dollars,  and  has  no  other  financial  in- 
terest. For  this  reason  the  organization  cannot  be 
considered  as  truly  cooperative. 

Still  another  type  of  cooperative  jobbing  is  shown 
when  retailers  organize  a  corporation,  maintain  a 
warehouse,  carry  on  all  the  jobbing  functions  and 
obtain  all  the  savings  which  accompany  organized  co- 


JOBBER'S  SERVICE  MODIFIED  195 

operation.  The  Girard  Grocery  Company  of  Phila- 
delphia is  an  illustration  of  this  kind  of  retail  coopera- 
tion. 

12.  Buying  arrangements  of  cooperative  associa- 
tions.— One  of  the  big  organization  problems  in  co- 
operative jobbing  is  to  establish  satisfactory  buying 
arrangements  with  manufacturers.  The  regular  job- 
bers try  to  prevent  manufacturers  from  selling  to  such 
organizations.  Then,  too,  the  new  organization  has 
difficulty  in  convincing  manufacturers  of  its  per- 
manence, the  mortality  among  both  wholesale  and  re- 
tail cooperative  concerns  being  high.  If,  however,  a 
good  financial  rating  is  secured  by  the  organization, 
manufacturers  are  glad  to  sell  to  it.  The  manufac- 
turers get  cash  prices  for  their  goods  and  an  outlet 
also,  w^hich  is  not  obstructed  by  private  brands. 

13.  Merchandise  limited  to  staple  brands, — Most 
cooperative  concerns  limit  themselves  to  staple  mer- 
chandise, generally  nationally  advertised  brands. 
This  is  especially  marked  in  drug  and  grocery  lines 
where  branded  goods  occupy  a  large  place.  The  as- 
sociation gathers  lists  of  articles  desired  by  retailers, 
and  then  buys  direct  from  the  manufacturer  in  job- 
bing quantities  at  jobbing  prices.  No  attempt  is 
made  to  influence  the  retailers'  selection  of  merchan- 
dise. 

The  real  problem  of  cooperative  jobbing  is  to  keep 
in  touch  with  the  market  and  the  needs  of  the  mem- 
bers. The  concern  must  be  able  to  supply  promptly 
the  goods  that  retailers  want,  since  failure  to  do  so  will 


196  MERCHANDISING 

lead  to  the  withdrawal  of  members.  The  organiza- 
tion must  also  act  as  distributor  of  information  on 
new  merchandise,  so  as  to  permit  members  to  order 
by  mail. 

14.  Scling  expenses  low, — With  no  advertising  ex- 
pense and  that  for  salesmen  reduced  to  a  minimum, 
cooperative  jobbing  houses  often  secure  great  econo- 
mies in  distribution.  The  few  salesmen  employed  are 
partly  ordertakers  and  partly  business  counselors. 
Salesmen's  expense  is  largely  eliminated  because  mem- 
bers either  order  by  mail  or  call  at  the  headquarters  of 
the  cooperative  concern  and  order  in  person.  Book- 
lets, catalogs,  pamphlets  and  price  quotations  are  sent 
to  members  periodically  and  snecial  lists  whenever  new 
arrangements  have  been  made  with  manufacturers  or 
whenever  special  purchases  are  to  be  offered. 

15.  Returning  and  exchanging  goods, — IMembers 
of  cooperative  jobbing  associations  are  usually  allowed 
to  return  goods  only  for  some  defect  in  their  manufac- 
ture. In  some  organizations,  provision  is  made  for 
a  dealer  wlio  is  overstocked  to  communicate  with  other 
retailers  thru  his  central  organization  and  in  this  way 
dispose  of  his  surplus  stock  when  possible. 

16.  System  of  pricing, — In  some  associations  the 
prices  are  made  the  same  as  on  the  manufacturers' 
lists,  the  savings  being  returned  to  the  retailer  at  the 
end  of  the  fiscal  year  in  the  form  of  rebates  and  divi- 
dends. In  other  associations  prices  are  cut  at  once 
to  the  lowest  notch.     In  still  other  associations  in 


JOBBER'S  SERVICE  MODIFIED  197 

which  non-members  are  allowed  to  purchase,  current 
market  prices  are  charged  and  no  other  benefits  such 
as  rebates  or  dividends  are  given  the  outsiders. 

17.  Short-term  credits, — All  sales  of  cooperative 
jobbing  associations  are  made  on  practically  a  cash 
basis.  Weekly  payments ;  payments  on  the  first  and 
fifteenth  of  each  month ;  payment  on  the  tenth  for  the 
merchandise  secured  the  previous  month ;  discounts  of 
one  or  two  per  cent  for  cash,  are  some  of  the  methods 
of  payment  required  by  different  associations. 
Losses  from  bad  debts  are  negligible.  One  success- 
ful concern  reports  that  its  losses  have  not  amounted 
to  more  than  one-fiftieth  of  one  per  cent  for  any  one 
year  since  they  had  organized.  These  concerns  are 
of  the  going  kind.  When  cooperative  associations  do 
not  last  the  condition  is  generally  due  to  imperfect 
organizing  and  financing.  When  cash  payments  are 
assured,  the  worst  stumbling  block  is  overcome. 

18.  Deliveries. — Direct  shipments  from  the  manu- 
facturer to  the  retailer,  drop  shipments,  as  they  are 
called,  are  arranged  by  well  conducted  cooperatives 
whenever  possible.  When  shipment  is  made  from 
the  warerooms  of  the  cooperative  associations',  the  re- 
tailers are  given  the  choice  of  sending  their  own 
wagons  for  the  goods  or  having  them  delivered  by  the 
cooperative  company  with  the  cost  charged  on  the 
invoice.  This  emphasis  on  delivery  expense  encour- 
ages the  member  of  the  association  to  group  his  pur- 
chases and  thus  avoid  small  shipments. 


198  MERCHANDISING 


REVIEW 


What  ecenomies  are  ejfFected  by  the  so-called  manufacturing 
jobber? 

What  is  a  semi-jobber? 

If  you  were  a  retailer  and  decided  to  develop  a  jobbing  branch 
of  your  business^  what  kind  of  organization  w^ould  you  effect? 

What  conditions  gave  rise  to  the  cooperative  jobber? 

Should  the  manufacturer  sell  to  cooperative  jobbers  at  regu- 
lar jobber  prices? 


CHAPTER  III 

PROBLEMS  OF  THE  JOBBER 

1.  Radius  of  successful  competition, — One  of  the 
fundamental  problems  with  which  the  jobber  is  con- 
cerned is  the  extent  of  the  field  in  which  he  can  operate 
with  profit.  One  hardware  jobber  places  his  radius 
of  effectiveness  at  150  to  200  miles,  a  grocery  jobber 
sets  the  limit  on  his  staple  lines  at  100  miles,  while 
a  dry -goods  jobber  sends  his  salesmen  as  far  afield 
as  500  miles.  A  jobber  must  determine  for  himself 
the  amount  of  territory  he  can  cover  and  work  the  se- 
lected territory  as  intensively  as  possible. 

In  considering  the  area  which  he  can  profitably 
cover,  the  jobber  must  take  note  of  several  matters. 
Cost  of  transportation  is  one  vital  point ;  in  it  must  be 
included  not  only  the  freight  but  often  also  the 
charges  for  trucking  to  the  retailer's  store.  Jobbers, 
therefore,  make  a  thoro  analysis  of  the  traffic  situa- 
tion in  order  to  determine  just  how  far  from  a  central 
point  they  can  distribute  the  different  classes  of  mer- 
chandise in  competition  with  other  jobbers  in  their 
own  and  neighboring  cities. 

The  time  element  is  also  one  of  importance.  Re- 
tailers, in  order  to  reduce  their  stocks  and  increase 
their  turnovers,  are  showing  an  increasing  tendency 

199 


goo  MERCHANDISING 

to  buy  in  small  quantities.  Naturally,  the  jobber  who 
can  deliver  the  goods  most  promptly  will  get  the  busi- 
ness. Consequently,  the  jobber  should  note  on  a  traf- 
fic map  or  some  similar  contrivance,  the  time  required 
to  make  deliveries  at  each  principal  point  in  his  ter- 
ritory. In  this  connection,  consideration  must  be 
given  to  the  ability  of  the  jobber  to  secure  merchan- 
dise in  ample  time  from  manufacturers  and  producers. 

2.  Analym  of  business  conditions, — The  jobber's 
market  problems  are  not  markedly  different  from  the 
market  problem  of  other  kinds  of  business  men.  An 
erratic  upward  or  depressed  market  naturally  reacts 
on  him  just  as  it  does  on  the  manufacturer.  Its  ef- 
fects in  his  case,  however,  are  not  likely  to  be  so  great. 
Almost  over  night  he  may  be  able  to  manipulate  his 
long  and  varied  line  of  merchandise  in  some  way  to 
meet  the  changed  conditions. 

Xevertheless,  the  influences  that  affect  the  jobber's 
market  are  many  and  far  reaching.  A  good  cotton 
crop  in  the  South  or  a  banner  corn  crop  in  the  West 
stimulates  business  in  those  sections.  But  their  effect 
is  not  entirely  local.  The  grocery  jobber,  for  ex- 
ample, in  Central  Xew  York  will  also  be  affected  by 
them  and  he  must  take  note  in  advance  of  what  will 
happen  there. 

The  progressive  jobber  keeps  in  touch  with  general 
business  conditions  thru  reading  the  financial  page 
of  his  newspaper  and  the  financial  reviews  of  his  trade 
press  and  service.  This  w  ill  serve  to  check  up  the  re- 
ports of  salesmen  which  generally  are  colored  by  the 


PROBLEMS  OF  THE  JOBBER  201 

degree  of  personal  success  they  are  having.  An  ex- 
cellent guide  to  fundamental  conditions  is  found  in 
the  reports  of  pig  iron  production,  which  on  account 
of  its  wide  use  reflects  the  economic  condition  and 
buying  powers  of  the  population.  Other  evidences  of 
prosperity,  or  its  opposite,  are  found  in  the  amount  of 
bank  clearmgs  and  in  the  balance  of  trade  as  shown 
by  the  discount  rate  between  local  cities  and  financial 
centers.  A  detailed  discussion  of  these  guides  is 
found  in  the  chapters  on  "Investment  Barometers"  in 
the  Modern  Business  Text  on  "Investment." 

3.  Conditions  in  the  industj^if. — After  the  iobber 
has  acquired  a  knowledge  of  business  conditions  in 
general,  his  next  problem  is  with  conditions  within  his 
own  industry.  What  is  the  total  consumptive  ca- 
pacity of  his  commodity  wi^-hin  his  territory?  This 
may  often  be  estimated.  A  family  of  four  or  five- 
father,  mother  and  two  or  three  children — is  tnken 
as  an  average  group.  Then  this  family  is  con'^i'lered 
as  from  the  standpoint  of  nationality  and  station  in 
life.  With  these  as  a  basis,  a  preliminary  investiga- 
tion is  made  in  various  parts  of  the  territory  to  find 
the  amount  of  the  product  consumed  by  a  standard 
family,  l^j  carrying  the  investigation  far  enough  to 
obtain  reliable  results,  an  average  consumption  capa- 
city is  deduced. 

For  example,  in  one  section  of  Greater  New  York 
it  has  been  found  that  the  average  consumption  of 
laundry  soap  on  the  part  of  American,  German  and 
Irish  families  in  households  in  which  the  family  wash- 


^02  MERCHANDISING 

ing  is  done  at  home  is  about  104  cakes  per  hundred 
families  per  week.  After  obtaining  the  average 
capacity  by  groups  according  to  nationahty,  station 
in  hfe,  earning  power,  etc.,  the  total  capacity  for  sec- 
tions of  territory  can  be  found  by  using  United  States 
Census  tables  as  a  basis  of  calculation.  In  some  in- 
stances the  figures  can  be  checked  by  state  census  re- 
ports. 

For  the  jobber  in  the  automobile  supply  field,  a 
fairly  close  approximation  of  the  development  of  the 
market  can  be  had  from  the  number  of  automobile 
licenses  issued  in  the  past  year  as  compared  with 
previous  years. 

These  illustrations  suggest  the  procedure  to  be 
followed  in  any  other  case. 

4.  Studying  the  needs  of  the  consumer. — While 
the  jobber  does  not  consider  the  consumer  so  closely 
as  the  retail  merchant  studies  him,  he  nevertheless 
knows  the  consumer  as  one  of  a  class,  and  must,  at 
least,  so  know  him,  in  order  to  cater  to  his  needs.  The 
jobber  ordinarily  should  push  the  goods  which  he 
believes  will  satisfy  an  existing  demand.  If  the  con- 
sumer has  to  be  educated  to  demand  a  new  article, 
the  experienced  jobber  is  generally  cautious  in  taking 
it  on.  Jobbers  have  sometimes  lost  heavily  because 
they  failed  to  understand  consumers'  wants  in  respect 
to  some  new  product.  Most  jobbers  nowadays  re- 
fuse to  stock  up  on  a  new  article  until  the  manufac- 
turer has  created  a  demand  for  it  either  thru  advertis- 
ing or  personal  selling  to  the  retail  trade. 


PROBLEMS  OF  THE  JOBBER  203 

Frequently  jobbers  in  a  section  unite  thru  a  trade 
association  in  the  survey  of  a  territory  to  learn  market 
conditions  there  for  their  respective  commodities. 
The  time  is  approaching  when  such  data  will  be  gath- 
ered systematically. 

5.  Knowing  the  retailer, — The  jobber  can  hardly 
secure  too  much  information  about  the  retailers  in  his 
territory.  The  most  active  wholesalers  make  lists  of 
their  customers,  actual  and  prospective,  and  keep  the 
record  up  to  date.  They  find  out  from  whom  the  re- 
tailers buy — whether  direct  from  manufacturers  or 
from  jobbers — and  in  what  quantities;  their  relative 
effectiveness  in  retail  selling,  their  possibilities  of  de- 
velopment, the  chances  of  getting  new  or  more  busi- 
ness from  them,  the  possibilities  of  developing  second- 
ary markets,  etc.  In  gathering  this  information  the 
jobber  secures  valuable  assistance  from  wholesale  and 
trade  associations  and  trade  magazines. 

To  cultivate  personal  relations  with  the  trade,  the 
jobber  and  his  office  executives  find  it  necessary  to  get 
out  into  the  field  occasionally,  since  retailers  no  longer 
"come  to  market,"  as  was  customary  fifty  years  ago. 
Trade  trips  of  local  jobbing  trade  associations  and 
wholesale  chambers  of  commerce  are  of  inestimable 
value  from  this  point  of  view  alone. 

Jobbers'  salesmen  are  required  to  report  systemat- 
ically on  conditions  as  they  find  them  in  each  com- 
munity and  in  each  customer's  business.  While  the 
salesman's  first  job  is  to  sell  goods  still  it  is  perfectly 
possible  for  him  to  gather  up  and  pass  along  vital  in- 

V  — 15 


204  MERCHANDISING 

formation  that  is  of  as  much  help  to  him  as  it  is  to  the 
house.  Those  houses  which  appear  to  have  gone  into 
the  matter  most  thoroly  provide  a  printed  list  of  ques- 
tions so  framed  as  to  convey  all  the  desired  informa- 
tion by  the  simple  answer  of  "y^s"  or  "no."  The 
questions  should  be  few  and  pointed. 

6.  Anahfzing  competition. — Few  jobbers  make 
systematic  analysis  of  competition,  but  instead  con- 
tent themselves  with  what  their  salesmen  see  and  hear 
of  it.  The  most  progressive  jobber,  however,  is 
thoroly  informed  as  to  the  activity  and  resources  of 
each  of  his  competitors.  He  secures,  for  example, 
information  as  to  their  capital  and  credit  standing 
from  a  commercial  agency  and  from  that  ascertains 
how  much  capital  is  required  to  compete  with  them. 

Competition  is  seldom  spread  out  evenly  over  a  job- 
ber's territory.  It  tends  to  concentrate  at  certain 
points  permanently  and  also  in  other  parts  of  the 
territory  to  shift  from  one  place  to  another.  Too 
much  competition  in  any  one  place  cuts  the  profits 
of  all  concerned.  It  is  not  necessary  for  all  jobbers 
to  ring  every  doorbell  together.  Up-to-date  jobbers 
keep  track  of  what  competitors  are  doing  and  arrange 
their  campaigning  so  as  to  give  their  salesmen  plenty 
of  elbow  room  without  sacrificing  any  real  opportuni- 
ties. 

The  length  of  time  a  competitor  has  been  established 
furnishes  a  handy  index  to  the  amount  of  good-will  he 
probably  has  built  up.  Good- will  is  one  of  the  job- 
ber's strongest  assets.     Conversely,  it  is  one  of  the 


PROBLEMS  OF  THE  JOBBER  205 

hardest  kinds  of  competition  to  meet.     The  only  way 
in  which  it  can  be  met  is  by  an  offsetting  good- will. 

Lastly,  the  jobber,  who  is  on  the  job,  desires  to 
know  how  fast  each  of  his  competitors  is  gaining. 
This  gives  him  a  line  on  the  value  of  the  methods  of 
each  and  the  respective  ability  of  the  salesmen.  It 
also  indicates  where  he  can  profitably  direct  his  efforts. 

REVIEW 

Is  there  a  geographical  limit  in  which  a  jobber  may  do  busi- 
ness profitably? 

If  you  were  a  jobber  of  groceries,  could  you  find  indications 
in  the  cotton  crops  and  pig  iron  output,  which  might  be  used  to 
your  advantage? 

Why  should  the  jobber  study  business  conditions  both  inside 
and  outside  his  particular  field? 

Discuss  the  relations  of  jobbers  toward  the  retailer,  the  con- 
sumer, and  other  jobbers. 


CHAPTER  IV 

RETAIL  COMPETITION 

1.  Magnitude  of  retailing, — The  retail  stores  in  the 
United  States  are  said  to  number  three-quarters  of  a 
milhon.  No  exact  figures  are  at  hand — even  the  Cen- 
sus does  not  supply  them.  But  the  figures  are  con- 
servative and  approximately  correct.  They  do  not 
include  the  mail-order  houses  and  the  manufacturing 
companies  and  others  marketing  direct  to  the  con- 
sumer. 

2.  Retailing  before  the  Civil  War, — In  the  United 
States,  previous  to  the  Civil  War,  retailing  was  very 
simple.  There  were  no  department  stores,  as  we  now 
know  them,  no  chain  stores  and  no  mail-order  selling. 
Retail  distribution  was  effected  thru  general  stores 
and  specialty  shops.  Many  of  the  general  stores 
were  large.  At  that  time,  however,  the  department 
idea  had  not  been  introduced.  The  prevailing  char- 
acteristic of  retail  selling  during  this  period  was  its 
monotony.  The  modern  demand  for  rapid  changes 
of  style  and  fashion  was  lacking.  The  majority  of 
lines  consisted  of  staples  that  were  largely  in  demand 
year  after  year. 

In  those  days  dealers  often  bought  in  large  quanti- 
ties to  get  low  prices  and  kept  some  of  the  goods  on 

206 


RETAIL  COMPETITION  207 

their  shelves  for  a  long  time.  This  was  particularly 
true  of  the  war  period  and  that  immediately  following, 
during  Avhich  prices  were  rising  and  demand  exceeded 
supply.  The  conditions  were  not  those  which  nerve 
ambition  and  promote  efficiency.  The  prevailing 
opinion  at  that  time  was  that  "anybody  could  keep  a 
store." 

Until  some  time  after  the  Civil  War  there  was  no 
such  thing  in  retailing  as  a  stated  fixed  price.  The 
proprietor  of  a  store  and  his  salesmen  knew  w^hat  the 
various  articles  cost  and  they  got  as  much  for  them 
as  they  could,  in  reason,  while  the  customer  paid  as  lit- 
tle as  possible.  Bargaining  was  the  rule.  Retail 
competition  was  based  largely  on  price.  Shrewd  mer- 
chants even  then  forebore  to  take  advantage  of  their 
customers  and  based  their  appeal  on  low  profits  and 
rapid  sale.  The  run  of  merchants,  however,  did  not 
appreciate  this  secret  of  successful  merchandising. 
They  aimed,  as  many  do  now,  at  big  profits  on  each 
article  and  outwitted  their  customers  as  often  as  they 
could.  The  public,  however,  tended  to  shop  wherever 
it  could  "beat  down"  prices,  and  the  spectacle  w^as 
presented  of  those  dealers  who  were  apparently  the 
least  successful  in  maintaining  prices  doing  the  largest 
business. 

3.  Changed  conditions  in  retailing  after  the  Civil 
War, — Not  many  years  after  the  Civil  War  retailing 
conditions  began  to  undergo  marked  changes.  For 
a  while  prices  continued  to  climb ;  then  came  the  turn 
and  a  slow  subsidence  extending  over  several  years. 


^08  MERCHANDISING 

then  an  up  curve,  then  later  another  decline  and  so 
on.  These  alternatives  of  favorable  and  unfavorable 
conditions  shook  most  retail  dealers  out  of  their  easy 
going  habits.  They  had,  in  fact,  to  change  their 
basis  of  doing  business,  or  go  to  the  wall.  Accom- 
panying the  declines  in  prices  had  come  a  tightening 
of  jobbers'  credit  terms  to  retailers  and  goods  in  many 
cases  had  to  be  sold  at  once  to  avoid  large  losses.  The 
results  were  in  a  large  measure  beneficial.  The  neces- 
sity for  quick  stock  turns  awoke  a  keen  spirit  of  com- 
petition, which  has  continued  and  grown  to  the  present 
day. 

Other  developments  of  this  post-war  period  are 
noteworthy.  Of  first  importance  was  the  increasing 
variety  of  manufactured  goods.  With  the  improve- 
ment of  manufacturing  processes,  the  disappearance 
of  the  frontier  and  the  remarkable  growth  of  Ameri- 
can cities,  household  industries  had  declined.  Many 
articles  long  produced  by  the  family  for  its  own  con- 
sumption were  now  manufactured  in  factories  and 
sold  thru  retail  stores.  Stores  now  carried  larger 
and  more  complete  stocks.  Progressive  retailers, 
however,  soon  discovered  that  they  would  have  to  turn 
their  capital,  that  is,  sell  the  goods,  faster,  if  they  ex- 
pected to  make  the  same  aggregate  net  profit  as  be- 
fore. Tho  this  condition  similarly  was  a  spur  to  pro- 
gress. 

A  second  development  was  the  rise  of  the  depart- 
ment store.  This  was  the  first  important  break  with 
the  past.     Up  to  this  time,  every  store,  no  matter  how 


RETAIL  COMPETITION  209 

large,  had  been  managed  as  a  unit.  At  length,  how- 
ever, the  very  size  of  the  stocks  forced  the  retailer  to 
make  some  sort  of  classification.  When  he  had  done 
so  and  created  departments  to  hold  them,  the  wisdom 
of  making  each  department  independent  and  self- 
supporting  was  not  long  in  making  itself  apparent. 
The  large  general  store  became  a  group  of  specialty 
shops  under  one  roof. 

This  significant  development  in  the  retail  field  does 
not  seem  to  have  had  any  part  in  the  beginnings  of  the 
chain  store  system  which  took  place  in  this  period  nor 
in  the  rise  of  the  mail-order  method,  which  came  later. 
Both  of  these  originated  in.  independent  ways.  But 
the  growth  of  both  was  obviously  accelerated  by  the 
earlier  departure  from  retail  precedent.  Both  mer- 
chants and  consumers  were  alive  to  new  currents  and 
tendencies. 

Finally,  the  reform  of  retail  methods  has  received 
a  profound  impetus  from  the  development  of  advertis- 
ing. Advertising  has  quickened  the  popular  buying 
instinct,  taught  the  people  to  know  value,  developed 
new  wants,  facilitated  identification  and  brought  in 
mail-order  competition. 

4.  New  basis  of  competition. — These  developments 
in  retail  selling  have  occurred  within  a  comparatively 
short  space  of  time,  fifty  years  at  most.  They  can 
be  summarized  as  a  change  in  the  basis  of  competition. 
Generally  speaking,  the  old  basis  of  competition  was 
price,  the  new  basis  is  service.  In  present  day  mer- 
chandising, a  store  even  when  it  gets  trade  by  a  low- 


^10  MERCHANDISING 

price  appeal,  as  many  of  them  do,  is  unable  to  hold 
it  unless  the  low  price  is  only  one  of  the  forms  of 
service  that  the  store  offers  to  its  customers.  The 
service  that  holds  business  and  draws  trade  from  com- 
petitors may  consist  only  of  courtesy,  a  "thank  you" 
attitude,  and  a  willingness  to  please.  On  just  such 
simple,  yet  important  things  as  courtesy,  great  busi- 
nesses have  been  built  up  and  made  to  prosper. 

5.  Necessity  of  retail  store, — Of  the  three  methods 
of  selling  at  retail — personal  solicitation  by  salesmen 
or  canvassers  in  calling  on  the  consumer ;  by  mail ;  and 
by  the  retail  store — the  latter  is  the  most  important 
because  it  is  the  most  common.  It  exists  because  it 
serves  the  people;  it  needs  no  other  justification.  It 
will  not  give  way  to  another  form  of  retail  selling  un- 
less the  new  form  shall  perform  the  service  better. 
The  retailer  is  the  great  middleman.  More  than  all 
other  kinds  of  middlemen  combined,  he  creates  time 
and  place  utilities :  he  makes  it  easy  for  the  manufac- 
turer to  market  his  goods  and  for  the  consumer  to  get 
them.  He  is  the  main  building  of  the  clearing  house 
between  demand  and  supply. 

REVIEW 

Can  you  point  out  the  big  differences  between  the  retailer  of 
fifty  years  ago  and  the  retailer  of  today? 

Has  the  manufacturer,  by  increasing  the  variety  of  products, 
been  an  influence  in  bringing  about  these  changes? 

How  has  advertising  played  its  part  in  this  change? 

What  is  meant  by  "service"  in  retailing? 

Will  the  mail-order  house  and  specialty  salesman  destroy  the 
value  and  necessity  of  the  retailer? 


CHAPTER  V 

RETAIL  TYPES 

1.  Rise  of  the  general  store. — Of  the  two  types  of 
retail  store,  the  specialty  or  one-line  shop,  which  is  the 
ordinary  store,  must  have  come  first  in  point  of  time, 
since  men  originally  sold  home-made  goods  from  their 
own  homes,  but  the  more  important  type  has  for  many 
years  been  the  general  store,  doubtless  in  the  begin- 
ning an  evolution  from  the  popular  fair,  bazar  or 
traveling  caravan.  In  the  United  States  the  general 
store  is  now  confined  almost  entirely  to  the  small  towns 
and  rural  districts.  Where  we  once  had  general 
stores  in  the  cities,  we  now  have  department  stores, 
which  took  their  rise,  not  from  general  stores,  as 
would  seem  most  probable,  but  from  the  specialty  dry- 
goods  store.  The  department  store  is,  in  effect,  a 
general  store  departmentized,  but  it  is  not  so  called. 
Similarly,  tho  it  is  not  so  called,  the  large  catalog 
house  is  a  general  store,  selling  by  mail.  The  city 
drug  stores  are  taking  on  many  of  the  character- 
istics of  general  stores  and  cannot  be  overlooked  as 
a  market  for  many  things  that  were  once  sold  only 
thru  other  kinds  of  stores,  but  they  do  not  carry  per- 
manent lines  of  general  staples  and  so  are  not  general 
stores. 

211 


212  MERCHANDISING 

The  reason  why  the  general  store  is  confined  to  the 
small  community  is  because  there  is  not  enough  busi- 
ness there  to  support  a  separate  grocer,  hardware 
dealer,  shoe  merchant  and  clothing  store,  tho  enough 
business  for  one  person  combining  all  these  and  other 
lines. 

2.  How  the  country  general  store  holds  trade, — On 
the  whole,  the  country  general  store  is  able  to  hold  its 
own  with  the  city  specialty  shops  and  department 
stores  that  solicit  country  trade,  as  well  as  with  the 
catalog  houses  and  mail-order  departments  of  city 
stores.  People  in  country  districts  find  it  more  con- 
venient to  trade  at  a  general  store  than  to  go  to  the 
neighboring  city.  Delivery  is  quicker,  and  any  ad- 
justments which  become  necessary  on  purchased 
goods  are  handled  with  less  difficulty.  Credit,  also, 
is  extended.  As  the  great  majority  of  people  pur- 
chase in  small  amounts  and  cannot  anticipate  their 
needs  to  any  great  extent,  the  country  store  is  called 
upon  to  supply  most  of  the  necessaries  of  country 
life. 

The  country  dealer  has  an  advantage  over  most 
city  merchants  in  knowing  his  customers  personally. 
If  he  has  a  reasonably  agreeable  personality,  he  will 
be  able  to  hold  his  trade  against  the  city  store's  most 
alluring  offers.  Furthermore,  he  can  cut  down  his 
bad  debts  to  a  minimum  because  he  can  base  his  credit 
risks  on  personal  knowledge  of  his  customers.  Being 
familiar  with  the  demands  of  his  trade,  he  can,  if  he 
wishes  to  do  so,  carry  a  stock  that  will  meet  its  normal 


RETAIL  TYPES  213 

demands.     The  fact  that  he  does  not  always  do  so 
is  no  argument  against  the  opportunity  for  it. 

3.  Whi/  the  country  general  store  loses  trade. — 
Some  of  the  weaknesses  of  the  country  store  are  in- 
herent, while  others  are  avoidable.  The  typical  coun- 
try store  carries  small  and  restricted  stocks,  and  can 
hardly  do  otherwise  since  its  customers  patronize  it 
only  for  staples,  going  to  the  city,  where  there  is  a 
wider  range  of  offerings,  when  in  need  of  luxuries 
and  "shopping"  speciajties. 

It  is  clear,  however,  that  the  city  draws  from  the 
country  a  lot  of  trade  that  the  country  general  store 
might  have  if  it  conducted  its  business  more  efficiently. 
Slip-shod  methods  of  advertising,  poor  salesmanship, 
poor  buying  methods,  lax  credit — these  are  some  of 
the  faults  which  prevent  too  many  general  stores 
from  realizing  on  the  opportunity  they  have. 

4.  Opportunity  of  the  country  store, — The  opinion 
held  by  some  persons  that  the  country  general  store, 
as  an  institution,  is  doomed,  is  an  erroneous  one.  The 
number  of  general  stores  is  falling  off  in  many  states, 
particularly  those  of  the  Middle  West,  but  this  is  due 
to  increasing  use  of  the  automobile  and  the  extension 
of  interurban  lines  which  lengthen  what  may  be  called 
the  shopping  radius  and  consequently  do  away  with 
the  necessity  for  the  former  number  of  retail  stores. 
It  is  possible  that  some  few  of  these  general  stores 
now  favored  by  the  new  tendencies  may  turn  into 
department  stores  where  the  town  is  already  a  large 
one,  but  it  is  not  likely  that  development  can  go  very 


214  MERCHANDISING 

far  or  fast  at  this  time.  In  any  event,  it  is  putting 
the  situation  into  the  hands  of  the  stronger  merchants 
and  gives  them  a  better  chance  than  before  to  hold 
their  own  Avith  the  city  stores  and  the  mail-order 
houses.  Many  manufacturers  have  no  other  access 
to  country  trade  except  thru  the  country  store.  As 
an  increasing  number  of  countr}^  merchants  realize 
their  opportunities  and  responsibilities,  adopt  modern 
merchandising  methods  and  improve  in  buying,  sell- 
ing and  advertising  the  country  store,  they  will,  in- 
stead of  dropping  out  of  the  merchandising  system, 
become  an  increasingly  important  and  profitable  out- 
let for  many  articles  of  merchandise. 

5.  Competitive  strength  of  the  specialty  store, — 
With  the  growth  of  a  community  there  arises  a  de- 
mand for  more  service:  a  better  variet}''  of  goods  in 
each  line  and  possibly  lower  prices  than  can  be  sat- 
isfied by  the  general  store  and  the  specialty  or  one- 
line  shop,  as  for  shoes,  hats,  men's  furnishings,  candy, 
etc.,  comes  into  existence.  In  the  cities  the  tendency 
is  even  more  marked.  Tho  checked  for  a  time  hy  the 
growth  of  the  department  stores,  it  is  now  proceed- 
ing faster  than  ever.  The  remarkable  development 
of  chain  stores  is  a  development  of  specialty  shops, 
and  while  the  department  stores  are  virtually  stand- 
ing still,  the  other  movement  is  going  on  at  ever-accel- 
erating speed. 

6.  Convenience, — One  of  the  advantages  offered  by 
the  specialty  store  is  convenience.  Department  stores 
do  a  large  business  in  men's  and  women's  clothing. 


RETAIL  TYPES  215 

dry-goods,  household  equipment  and  even  in  groceries 
and  meats,  but  they  are  centrally  located  and  cannot 
serve  all  neighborhood  needs.  These  can  only  be  met 
by  the  "corner"  grocery,  the  local  drug  store,  cigar 
store,  haberdashery,  jewelry  store,  hat  store,  hardware 
store,  shoe  shop.  Then  many  persons,  men  in  par- 
ticular, do  not  care  to  do  their  buying  in  the  big 
crowded  store,  but  patronize  by  preference  the  small 
"handy"  shop.  Still  other  specialty  shops  cater  to 
an  exclusive  trade.  The  appeal  of  the  specialty  shops 
in  general  is  that  of  complete  stocks,  personal  service, 
exclusive  designs  and  immediate  delivery. 

7.  Complete  stocks. — The  largest  department 
stores  may  carry  a  wider  variety  of  goods  in  any  line 
stocked  than  the  average  specialty  shop,  but  taking 
the  types  of  store  and  the  lines  as  a  whole,  it  can 
be  said  that  the  advantage  is  with  the  shop.  The 
proprietor  of  an  independent  store  who  gives  his  en- 
tire thought  to  one  class  of  goods  is  generally  able 
to  offer  customers  a  larger  assortment  than  the  sal- 
aried buyer  for  a  small  section  of  a  department  store. 

8.  Personal  service, — The  proprietor  of  the  spec- 
ialty store  is  in  a  position  to  offer  his  customers  a 
more  courteous  and  intelligent  service  than  it  is  pos- 
sible for  the  average  department  store  employe  to  do. 
The  independent  merchant  knows  many  customers 
personally;  he  relies  less  on  transient  trade  than  the 
department  store  does,  and  he  is  better  able  to  adapt 
his  stock  to  individual  requirements. 

The  problem  of  infecting  the  sales  staff  with  his 


gl6  MERCHANDISING 

own  taste,  ideals,  courtesy  and  enthusiasm  is  much 
simpler  for  the  proprietor  of  the  specialty  store  than 
it  is  for  the  department  store.  Employes  in  a  large 
store  are  subject  to  many  different  influences  that 
work  against  the  buyer's  will  and  the  store  policy. 
In  a  small  store,  the  few  clerks  are  directly  under 
the  proprietor's  eye  and  closely  associated  with  him 
all  the  time.  Consequently  he  can  easily  stamp  them 
with  his  own  individuality  and  make  the  store  in  every 
particular  reflect  it.  If  it  is  agreeable,  this  multi- 
plication of  it  is  not  only  an  asset  to  the  owner,  but 
something  that  the  public  appreciates  consciously  or 
unconsciously  as  service. 

9.  Rapid  turnover. — Knowing  his  trade  more  or 
less  intimately  and  being  able  to  adjust  his  stock 
readily  to  known  needs,  the  owner  of  a  specialty  store 
is  frequently  able  to  carry  relatively  smaller  stocks 
and  turn  his  capital  faster  than  the  department  store 
buyer,  even  tho  the  latter's  market  is  wider  and  is 
stimulated  by  newspaper  advertising  and  bargain 
sales.  The  reputation  for  rapid  turnover  in  most 
lines  rests  with  the  department  store,  but  plenty  of 
exceptions  are  on  record  and  in  general  it  may  be 
said  that  there  is  no  inherent  reason  why  the  specialty 
shop,  well  located  and  well  managed,  should  not  move 
its  goods  faster  than  any  other  kind  of  retail  agency. 

10.  Low  expenses, — For  the  reasons  stated,  the 
specialty  store  seems  in  most  cases  to  have  secured 
greater  economies  in  operation  than  the  department 
store.     Investigations  covering  ten  different  kinds 


RETAIL  TYPES  217 

of  specialty  stores  show  that  the  average  cost  of 
doing  business  in  specialty  stores  ranged  from  17 
per  cent  in  groceries  to  26.81  per  cent  in  jewelry, 
while  similar  costs  for  the  department  store  were 
26.50  per  cent  (34  per  cent  for  one  department  store 
in  New  York  City).  The  percentages,  based  on 
total  sales,  were  as  follows,  being  taken  in  part  from 
Sammons'  "Keeping  Up  With  Rising  Costs,"  from 
data  furnished  by  the  Curtis  Publishing  Company 
and  from  other  sources : 

Groceries 17.00 

Vehicles  and  implements    18.44« 

Variety  goods 18.50 

Hardware    20.41 

Clothing    23.27 

Dry-goods 23.05 

Shoes 23.30 

Furniture    26.51 

Drugs    24.65 

Jewelry    26.81 

Department  stores 26.50 

The  figures  are  naturally  only  approximate  and 
represent  averages,  but  as  their  value  lies  rather  in 
the  comparisons  which  can  be  made  and  as  there  is 
no  reason  to  assume  that  the  relations  of  the  various 
lines  would  be  substantially  changed  by  further  inves- 
tigation, they  may  be  taken  as  dependable  and  help- 
ful. The  cost  of  doing  business  is  made  up  of  items 
of  rent,  interest  on  capital,  salaries,  lighting,  cost  of 
goods,  etc.  The  percentage  of  the  cost  is  found,  of 
course,  by  dividing  the  cost  by  the  volume  of  sales. 


218  MERCHANDISING 

Rent  with  specialty  shops  is  sometimes  a  smaller  item 
than  with  specialty  departments,  altho  this  is  not 
the  case  with  the  big  corner  drug  stores  in  shopping 
centers.  If  the  specialty  store  owner  has  the  advan- 
tage arising  from  smaller  cost  of  doing  business,  he 
should  be  able  to  pass  the  advantage  on  to  his  cus- 
tomers in  the  form  either  of  price  or  of  service,  thus 
increasing  his  competitive  strength  as  against  that 
of  the  department  store,  and  many  specialty  shops 
do  so. 

11.  Points  of  weakness  in  specialty  stores, — Indi- 
vidual specialty  stores  are  vulnerable  at  three  points. 
These  are  the  limited  opportunities  for  trade,  buy- 
ing and  organization.  The  first  point  is  a  limitation 
in  location  but  not  in  proprietorship ;  the  second  limi- 
tation, that  of  buying  opportunity,  may  be  and  in 
many  cases  is  being  overcome  by  cooperation,  and  the 
third  difficulty,  that  with  respect  to  organization,  can 
be  made  to  yield  to  proper  management.  They  will 
be  considered  more  in  detail. 

12.  Limited  opportunities  for  trade, — The  spe- 
cialty shop  is  essentially  a  local  store.  Almost  always 
it  draws  most  of  its  trade  from  persons  who  live  or 
work  in  its  vicinity.  The  business  is  therefore  gen- 
erally limited.  There  are,  however,  distinguished  ex- 
ceptions, stores  which  have  made  for  themselves  a 
reputation  for  service  or  exclusive  styles  and  which 
draw  people  from  other  sections.  Every  line  in  every 
large  city  has  at  least  one  such  instance.  Sometimes 
these  stores  confine  their  advertising  to  direct-by-mail ; 


RETAIL  TYPES  219 

at  other  times  they  use  the  newspapers  and  printed 
display. 

Moreover,  it  should  be  borne  in  mind  that  the  spe- 
ciality store,  too,  may  do  business  by  mail  and  extend 
its  territory  in  that  way.  Furthermore,  tho  the 
neighborhood  and  other  conditions  may  render  it  im- 
possible for  the  store  to  expand  locally,  it  may  expand 
in  other  localities  by  the  addition  of  other  specialty 
stores  and  become  a  chain.  In  other  words,  the  limi- 
tation is  more  imaginary  than  real. 

13.  Limited  opportunities  for  advertising. — ^As  a 
specialty  store  does  a  business  virtually  confined  to 
one  neighborhood,  the  profitable  use  of  newspaper 
advertising  is  generally  precluded.  A  sniall  neigh- 
borhood store,  appealing  at  the  most  to  a  very  small 
percentage  of  the  total  circulation  of  a  newspaper, 
that  is,  its  whole  number  of  subscribers,  its  owner 
would  have  to  pay  for  so  much  "waste  circulation"  of 
the  newspaper,  which  would  be  the  circulation  going 
to  people  who  could  not  patronize  him,  that  it  would 
not  pay  him  to  use  it. 

On  the  other  hand,  the  high  class  specialty  store 
which  is  centrally  located  may  use  several  kinds  of 
local  advertising,  including  newspaper,  even  tho  it 
cannot  afford  the  large  space  taken  in  the  last  named 
medium  by  the  department  store. 

As  is  the  case  with  other  forms  of  business,  the  buy- 
ing public  which  the  store  has  to  reach  determines 
the  kind  of  advertising  the  specialty  store  shall  use. 
For  the  village  clothier,  the  medium  is  the  village 

V— 16 


220  MERCHANDISING 

weekly  paper;  for  the  neighborhood  haberdashery  in 
the  large  city,  it  is  advertising  by  mail,  and  in  unusual 
instances  the  daily  newspaper;  for  the  exclusive  shop 
in  a  well-known  shopping  center  it  may  be  special 
mail  announcements,  booklets,  displays,  painted  bul- 
letins, newspapers,  or  at  times  an  advertisement  in 
some  high-grade  magazine  with  large  local  circulation. 
Some  specialty  stores  spend  little  or  nothing  in  ad- 
vertising; others  use  personal  solicitation. 

14.  Limited  lines. — While  the  lines  of  the  average 
specialty  shop  may  surpass  the  same  lines  in  the  de- 
partment store,  its  offerings  are  limited  to  those  lines. 
If  a  customer  has  several  things  to  buy,  he  or  she 
may  not  care  to  shop  around;  it  is  a  convenience  to 
be  able  to  buy  them  all  under  one  roof.  Convenience 
may  thus  outweierh  considerations  of  service,  price 
and  variety.  This  is  a  more  or  less  con<5tnnt  con- 
dition. It  does  not  present  insuperable  difficulties. 
The  prescription  for  it  is  more  service,  better  lines, 
attractive  'prices  and  the  advertising  that  makes  all 
these  known. 

15.  ^Weakness  in  buying. — The  individual  specialty 
store  is  certainly  at  a  disadvantage  with  the  depart- 
ment store  when  it  comes  to  buying  in  quantity.  The 
department  store  can  afford  to  have  buyers  in  most 
of  the  large  markets  constantly  on  the  alert  to  pick 
up  bargains  and  new  lines  of  goods.  The  small  spe- 
cialty store  cannot  afford  this.  Even  if  it  combines 
with  stores  in  other  cities  to  maintain  a  common  buyer 
at  a  central  market,  the  service  is  not  likely  to  be  so 


RETAIL  TYPES  221 

efficient,  so  free  handed  and  intelligent  in  style  lines 
and  novelties,  at  all  events,  as  that  of  the  buyer  who 
serves  only  one  house  and  one  policy.  In  jobbing 
lines  the  situation  may  be  different.  In  the  second 
place,  even  tho  any  one  department  of  the  depart- 
ment store  may  not  sell  as  much  merchandise  as  the 
competing  speciality  shop,  yet  because  of  the  prestige 
that  surrounds  a  department  store,  some  manufac- 
turers are  willing  to  give  it  an  extra  discount  in  order 
to  place  their  goods  on  its  shelves,  and  this  of  course 
works  against  the  specialty  shop  in  price.  Against 
this  buying  disadvantage,  the  specialty  shop  sets  the 
lower  cost  of  doing  business,  and  its  personal  service. 

16.  Poor  management, — This  is  the  one  compel- 
ling cause  for  the  poor  business  which  so  many  stores 
do  and  which  many  times  makes  department  store 
methods  shine  in  comparison.  Too  many  storekeep- 
ers do  not  know  how  to  make  their  stores  attractive, 
do  not  know  how  to  bring  people  in,  do  not  know  how 
to  buy  or  sell,  keep  their  stock  or  price  their  goods. 
The  chief  and  practically  the  only  competitor  of  the 
average  retailer  is  himself.  When  he  knows  his 
business  as  well  as  the  department  store  proprietor 
knows  his,  he  can  hold  his  own  under  any  sort  of  com- 
petition the  department  store  can  offer. 

17.  Future  for  specialty  store. — JNIost  of  the 
striking  developments  in  the  retail  field  have  been 
made  by  the  department  stores,  the  chains  and  the 
catalog  houses.  Only  a  few  small  retailers — a  few 
thousands  among  the  hundreds  of  thousands — have 


222  MERCHANDISING 

wholly  seen  the  light  and  begun  to  work  aggressively 
along  the  right  lines.  The  rest  are  certain  to  follow 
and  the  revolution  that  will  then  occur  will  make 
what  we  have  been  seeing  look  small  in  comparison. 
By  developing  its  individual  service,  by  capitalizing 
its  individuality,  by  the  speedy  and  the  systematic 
adoption  of  new  experiences  and  especially  by  coop- 
erating with  its  sources  of  supply  and  selection  of 
fast-selling  lines,  among  them  those  of  nationally 
known  brands,  the  small  merchant  is  assured  a  future 
of  enduring  prosperity.  The  small  store  is  essential 
for  the  manufacturer  seeking  an  outlet  for  his  goods. 
If  these  goods  are  the  kind  that  require  wide  distri- 
bution, the  specialty  store  is  almost  the  only  trade 
channel  open  to  him.  Hence  the  specialty  store  has 
not  only  its  own  power  to  depend  upon,  but  that  of 
the  manufacturer  as  well. 

Manufacturers  who  trade-mark  and  advertise  their 
goods  find  the  specialty  store  easier  to  sell  than  the 
department  store  for  that  very  reason,  namely  that 
whereas  the  department  store  wishes  to  stand  alone 
and  subordinate  every  interest  to  its  own,  the  small 
merchant,  if  he  is  progressive,  realizes  that  he  can 
take  the  good-will  attaching  to  the  national  advertis- 
ers' products,  add  the  good-will  of  his  own  little  store 
and  make  a  combination  that  is  hard  to  beat. 

18.  Rise  of  the  department  store. — The  department 
store,  which  is  the  third  type  of  retail  institution, 
probably  originated  in  France.  It  was  quickly  trans- 
planted to  the  United  States  in  the  period  following 


RETAIL  TYPES  223 

the  Civil  War.  Today  it  is  found  all  over  the  civi- 
lized world.  Its  growth  and  the  accompanying  proh- 
lems  and  possibilities  have  played  a  strong  part  in 
breaking  down  trade  traditions  and  complicating  the 
process  of  marketing. 

19.  Two  kinds  of  department  stores. — Department 
stores  fall  into  two  classes :  the  common  kind,  in  which 
there  is  one  ownership  for  the  whole  store,  whether 
an  individual,  partnership  or  corporation;  and  also 
another  type,  in  which  each  department  of  the  store 
is  separately  owned,  the  store  thus  really  consisting 
of  a  number  of  separate  shops  all  covered  by  one  roof 
and  operating  tinder  one  name.  In  such  a  case,  the 
owners  of  the  separate  stores  contribute  to  a  fund 
to  pay  for  the  common  or  "store"  activities,  such  as 
deliveries  and  advertising,  and  pay  rent  according  to 
the  space  and  floor  occupied,  but  retain  individual 
control  over  the  sales  and  profits  of  their  respective 
departments.  Between  these  two  types  there  are  a 
number  of  variations.  A  common  form  in  some  parts 
of  the  country  is  the  store  having  individual  or  cor- 
porate ownership,  with  few  or  many  departments 
rented  out  to  or  owned  and  operated  by  others. 

20.  Why  the  department  store  is  popular, — The 
popularity  of  the  department  store  is  evidenced  by  its 
early  rapid  growth  and  generally  continued  prosper- 
ity. It  is  popular  because,  on  the  one  hand,  it  offers 
many  conveniences  to  patrons,  and  a  ready  return  to 
capitalists  and  merchants  on  the  other. 

The  great  convenience  afforded  by  the  department 


2U  MERCHANDISING 

store  is  its  concentration  and  display  of  goods.  It 
is  possible  for  a  customer  to  do  his  or  her  shopping, 
when  it  is  extensive,  in  a  minimum  of  time.  The  fact 
that  so  much  of  the  stock  is  in  plain  view  is  another 
attraction.  It  helps  the  public  to  make  up  its  mind, 
assists  it  in  determining  and  revising  its  wants.  The 
department  store  is  a  huge  bazar  and  fair  under  one 
roof.  It  is  not  precisely  a  convenience  to  customers 
that  a  crowd  goes  with  it,  but  unquestionably  the 
crowd  is  one  of  the  prime  attractions  of  the  big  store. 
Unless  it  is  oppressively  dense,  most  people  like  it, 
partly  as  a  spectacle,  partly  as  a  drama  in  which  they 
have  a  part.  The  big  store  is  a  show  place  to  which 
people  resort  and  eventually  buy.  Big  store  pro- 
prietors foster  this  idea.  Some  even  provide  concerts. 
21.  Elements  of  department  store  strength. — 
Whether  the  department  store  does  or  does  not  offer 
superior  economies  of  operation  seems  to  be,  in  the 
abstract,  a  debatable  question.  The  department 
stores  have  assiduously  propagated  the  idea,  but  the 
sworn  testimony  of  department  store  managers  in  a 
governmental  inquiry  does  not  support  it.  The  only 
certain  advantage  that  was  claimed  by  them  over  the 
one-line  store  is  in  buying.  Department  stores,  hav- 
ing large  cash  resources,  are  able  to  get  the  best  in 
the  market  at  the  best  market  prices,  and  also  fre- 
quently to  pick  up  odd  lots  and  manufacturers'  sur- 
plus production  that  do  not  get  to  the  general  mar- 
ket at  all.  This  is  undisputed  and  it  is  one  of  the 
reasons  for  the  strength  of  the  department  store  with 


RETAIL  TYPES  ^25 

the  public.  But  all  other  so-called  advantages  over 
the  small  store  which  they  may  secure  in  whole  or 
part  in  this  or  that  individual  case  are  problematical 
in  the  aggregate.  Whether  the  saving  from  close 
quantity  buying  offsets  the  undeniable  higher  cost  of 
doing  business  is  yet  to  be  demonstrated. 

The  greatest  growth  of  the  department  store  was 
in  the  last  decade.  The  rate  of  growth  has  not  been 
maintained.  There  has,  in  many  cases,  been  a  reces- 
sion due  to  the  fact  that  the  movement  was  overdone, 
and  also  to  the  fact  that  the  specialty  shops  which  at 
first  had  been  half-paralyzed  with  fear  at  the  swift 
development  of  the  big  units,  had  studied  them  at 
close  range  and  resumed  their  competition  with  re- 
covered equanimity.  We  may  regard  the  situation 
now  as  one  of  balance.  The  question  of  relative  ad- 
vantage then  becomes  one  of  relative  executive  abili- 
ties. A  good  department  store  manager  may  attract 
trade  from  specialty  shops  poorly  run.  Conversely, 
progressive  one-line  merchants  may  snap  their  fingers 
at  the  big,  cumbrous,  departmentized  and  over-organ- 
ized establishment. 

Regarded  from  this  point  of  view,  the  department 
store  offers  to  an  enterprising  merchant  possibilities 
for  a  number  of  economies  in  operation  which,  small 
perhaps  in  themselves,  produce  in  the  aggregate  a  sum 
which  may  represent  a  satisfactory  return  on  the 
money  he  invests  in  the  business,  more  money,  it 
will  be  remembered,  than  he  can  invest  in  a  single 
specialty  shop. 


^^6  MERCHANDISING 

22.  Economies  in  combination, — The  first  possibil- 
ity is  that,  generally  speaking,  the  overhead  expense 
of  conducting  two  departments  under  one  roof  and 
one  manager  should  be,  and  other  things  being  equal, 
is,  less  than  when  they  are  separate  stores  under 
separate  ownership.  The  same  is  true  of  three,  four, 
and  an  uncertain  number  of  additional  departments. 
It  is  not  true  of  an  indefinite  addition,  because  after  a 
certain  number  of  departments  are  added,  the  size 
of  the  building  and  the  number  of  floors  increase, 
which  means  more  rent,  more  difficulty  in  securing 
ease  of  movement  or  flow  of  traffic,  less  effective  super- 
vision, additional  burdens  of  management,  and  similar 
problems. 

23.  Possibilities  in  handling  low-salaried  help. — A 
second  opportunity  for  saving  is  in  having  low-sal- 
aried employes.  But  this  is  a  certain  economy  only 
in  a  department  store  of  moderate  size.  The  lower 
the  scale  of  responsibility  in  employes,  the  more  is 
supervision  required,  and  the  larger  the  chain  of  super- 
vision, the  less  effective  does  it  tend  to  become.  That 
is  the  situation  as  it  stands.  It  is  not  hopeless. 
There  will  certainly  be  great  rewards  for  those  who 
master  it  and  hundreds  of  department  store  managers 
are  working  on  it. 

24.  Advertising  and  service  advantages. — Size  and 
departmentization  helps  the  advertising  by  distribut- 
ing its  costs  over  more  articles  and  sections.  Custo- 
mers, for  example,  come  in  to  buy  goods  in  one  depart- 


RETAIL  TYPES  2S7 

ment  that  have  been  advertised,  and  also  buy  goods 
in  other  departments  that  were  not  advertised. 

Again,  the  size  and  attractiveness  of  the  large  store 
and  its  stock  make  shopping  a  habit  with  the  public. 
People  shop  not  only  to  satisfy  present  needs  but  also 
to  anticipate  wants  and  acquire  new  ones.  Every- 
thing is  done  by  the  up-to-date  stores  to  make  it  easy 
for  the  shoppers.  There  are  rest  and  waiting  rooms, 
restaurants,  concert  halls,  hair  dressing  and  manicure 
rooms,  telephone  booths,  and  all  sorts  of  comforts 
and  conveniences  that  could  not  be  offered  by  a  one- 
line  house.  These  cost  money,  but  they  attract,  and 
that  is  what  they  are  for. 

25.  Credit  on  a  better  basis, — As  a  rule,  the  depart- 
ment store  has  its  credits  and  collections  on  a  far 
better  basis  than  the  little  shop,  which  either  does  not 
dare  to  give  credit  at  all,  or  else  has  many  times  to 
give  it  in  excess  and  suffers  abuse.  Some  department 
stores  do  not  allow  charge  accounts,  but  instead  per- 
suade their  patrons  to  maintain  cash  deposits  with 
them,  against  which  their  purchases  are  charged  in 
the  same  way  as  against  a  charge  account.  The 
stores  pay  interest  on  the  deposits. 

The  department  stores  themselves  are,  however, 
much  given  to  one  kind  of  laxity  when  it  comes  to 
settling  their  own  bills.  This  does  not  consist  in 
doubtfulness,  but  in  tlie  stores  taking  cash  discounts 
while  settling  only  in  30  days.  This  gives  them  the 
use  of  their  creditors'  capital  for  20  days  or  more 


228  MERCHANDISING 

extra.     This  advantage  will  disappear  with  the  free 
establishment  of  the  trade  acceptance. 

The  very  magnitude  and  urgency  of  the  problems 
of  the  department  store  has  led  their  management 
to  give  special  attention  to  them  and  to  introduce 
short-cut  methods  and  systems  that  save  time,  labor 
and  money.  The  department  stores  of  the  country 
are  now  nationally  organized  for  the  exchange  of 
experience. 

26.  Better  management, — Department  stores  not 
only  require  but  can  afford  managers  of  the  highest 
type,  and  this  is  one  of  the  greatest  promises  for 
their  future.  The  problem  of  department  store  pro- 
gress is  now  altogether  a  matter  of  management.  It 
is  possible  that  one  solution  will  lie  in  the  cultivation 
of  the  service  idea  in  the  popular  mind.  For  fifteen 
or  twenty  years,  department  stores  have  been  preach- 
ing the  doctrine  of  cheaper  prices  by  means  of  adver- 
tising and  bargain  sales,  and  some  of  them  are  begin- 
ning to  see  that  it  was  a  mistake.  Bargain  sales  are 
going,  and  price  advertising  has  seen  its  best  day. 
The  change  is  slow,  but  it  is  observable  in  many  di- 
rections. It  will  possibly  be  discovered  that  most  of 
the  patrons  of  department  stores  like  to  shop  in  them 
almost,  if  not  quite,  irrespective  of  prices,  and  that 
when  the  reasons  for  the  preference  are  appreciated 
and  exploited  in  the  advertising,  they  will  be  more 
efficacious  than  the  overworked  and  heavily  discounted 
price  appeal  that  is  now  being  so  largely  used. 

27.  Manipulation  of  departments, — Many,  possibly 


RETAIL  TYPES  229 

most,  department  stores  under  one  ownership  and  con- 
trol run  one  or  more  departments  at  an  intentional 
loss  for  the  same  reason  that  they  cut  the  prices  on 
certain  well-known  articles,  namely  to  use  as  "sales 
leaders."  The  effect  of  doing  this  is  not  only  to  at- 
tract to  those  departments  customers  from  whom 
other  trade  will  likewise  be  secured,  but  to  create  in 
the  public  mind  an  impression  that  all  the  goods  in 
the  store  are  similarly  low-priced.  This  practice, 
however,  has  been  criticized,  and  it  is  not  in  harmony 
with  the  most  progressive  thought  in  the  trade. 

28.  Financial  advantages. — From  a  financial  point 
of  view,  the  large  department  store  has  many  advan- 
tages. It  is  well  known  nationally  and  can  sell  its 
commercial  paper  in  any  part  of  the  country.  Manu- 
facturers offer  it  greater  discounts  and  longer  terms, 
which  make  financing  less  difficult.  On  the  collec- 
tion side,  the  department  store  is  better  equipped 
than  the  small  store  in  handling  customers'  accounts 
and  is  far  more  independent  in  making  collections. 
This  facilitates  the  use  of  the  working  capital. 

29.  Elements  of  weakness  in  department  stores. — 
The  advantage  of  location  which  most  department 
stores  enjoy  is  neutralized  to  greater  or  less  extent 
by  the  higher  rent  they  pay.  The  same  is  true  in 
respect  to  the  crowds  that  come  and  are  served :  they 
are  attracted  by  expensive  advertising,  fittings,  com- 
forts and  luxuries.  The  specialty  shops  already  have 
the  advantage  in  respect  to  the  cost  of  doing  business, 
as  has  been  shown.     If  the  competition  should  become 


230'  MERCHANDISING 

one  between  greater  personal  service  and  greater  me- 
chanical service,  no  doubt  the  department  store  would 
fight  a  losing  battle,  because  the  mechanical  service 
Tf  convenience,  luxury  and  the  rest  comes  high,  wliile 
greater  personal  service  costs  little  more  than  an  in- 
crease in  intelligence.  This  is  the  department  store's 
problem. 

The  scarcity  of  goods  occasioned  by  the  war  gave 
the  department  stores  especially,  an  opportunity  and 
a  reason  for  restricting  the  privilege,  w^hich  had  been 
greatly  abused,  of  delivering  goods  on  approval,  or 
of  return.  There  is  a  question  whether  this  gain 
will  be  permanent,  whether  when  the  market  is  again 
flooded  with  goods,  competition  will  not  bring  this 
same  extravagance  of  method. 

The  great  size  of  a  department  store  offers  unusual 
opportunities  for  wastes  and  inefficiencies.  Constant 
supervision  of  employes  is  impossible,  and  there  is 
always  danger  that  the  ideals  and  policies  developed 
by  the  high-priced  manager  may  be  wrecked  by  the 
$10  or  $15-a-week  saleswoman  who  neither  under- 
stands nor  cares  about  the  store  spirit  and  purpose. 
Dealing  as  it  does  with  thousands  of  customers  tliru 
low-salaried  employes,  the  business  must  be  conducted, 
as  we  have  already  seen,  on  an  impersonal  basis.  It 
is  possible  for  department  heads  and  salespeople  to 
build  up  a  permanent  clientele  based  to  some  extent 
on  personal  relations  no  less  than  on  reliable  goods, 
but  not  to  the  same  degree  as  in  the  case  of  the  spe- 
cialty store. 


RETAIL  TYPES  231 

The  competition  existing  between  department 
stores,  which  is  greater  than  that  between  depart- 
ment stores  and  specialty  shops,  often  brings  the  ex- 
penditure dangerously  near  the  point  of  no  profits. 
Excessive  bargain  sales  are  responsible  for  the  wreck- 
ing of  more  than  one  store. 

30.  Expensive  delivery  systems, — The  cost  of  de- 
livery systems  is  every  year  becoming  a  greater  bur- 
den to  the  department  store,  until  it  seems  that  some- 
thing will  have  to  be  done  in  the  way  of  economy, 
either  by  throwing  the  burden  of  the  service  on  the 
customer  by  making  a  delivery  charge  to  cover  in 
whole  or  part  the  average  expense,  which  is  said  to 
run  from  five  to  seven  cents  a  package,  or  else  by 
giving  up  their  own  individual  delivery  service  and 
either  operating  one  in  combination  or  else  patroni- 
zing an  independent  one  that  shall  be  developed.  The 
present  delivery  services  are  really  a  part  of  the  adver- 
tising, but  it  is  doubtful  if  the  effect  in  prestige  is 
not  greatly  overrated. 

It  is  true  that  the  burden  of  delivery  problem  has 
been  made  lighter  by  the  introduction  of  motor  trucks 
and  various  automatic  carrying  and  loading  devices. 
jNIodern  department  store  equipment  now  includes 
gravity  and  belt  conveyors,  spiral  chutes,  freight  ele- 
vators handling  ten-ton  trucks  and  spare  truck  bodies 
for  loading  while  the  trucks  and  other  bodies  are  in 
commission. 


232  MERCHANDISING 


REVIEW 


Is  the  country  general  store  fighting  a  losing  fight?  What  is 
likely  to  be  its  status  in  the  future? 

A  well-managed  down-town  hardware  store  finds  itself  in 
competition  with  a  neighboring  department  store,  which  has  re- 
cently installed  a  hardware  department.  Is  the  specialty  store 
likely  to  compete  successfully?  What  advantages  has  it  in  get- 
ting and  holding  trade? 

An  outhung  drug  store  in  a  city  of  about  fifty  thousand,  tho 
a  good  store  with  a  fairly  able  manager,  sees  much  of  its  trade 
going  to  the  down-town  department  stores  and  chain  stores. 
What  are  ordinarily  the  reasons  for  such  a  condition? 

What  makes  the  department  store  strong?  What  present 
tendencies  hinder  the  growth  of  department  stores? 


CHAPTER  VI 

CHAIN  STORES 

1.  Rise  of  the  chain  store, — The  foundations  for 
the  chain-store  system  of  retailing  were  laid  during 
the  period  just  subsequent  to  the  Civil  War  by  the 
Great  Atlantic  and  Pacific  Tea  Company.  For 
many  years,  it  had  the  field  almost  to  itself.  New 
chains  in  the  grocery  and  other  fields  developed,  but 
as  the  growth  was  slow  and  the  units  were  small,  the 
significance  of  the  new  principle  of  operation  was  not 
recognized  and  the  matter  received  little  attention 
from  the  other  retailers  or  the  jobbers,  manufacturers 
and  trade  journals.  The  basis  of  chain  store  success 
is  quantity  buying  and  a  centralization  in  manage- 
ment which  permits  many  economies  over  the  methods 
in  ordinary  use  in  retail  stores.  When  a  retailer  has 
mastered  the  detail  of  store  management,  he  finds 
it  almost  as  easy  to  direct  two,  three  or  a  dozen  stores 
as  one.  It  is  largely  a  question  of  picking  subor- 
dinates and  watching  them.  All  subsequent  growth 
depends  merely  on  the  elaboration  of  the  same  prin- 
ciples. 

Public  interest  in  chain  stores  was  first  aroused  by 
the  spectacular  rise  and  rapid  development  of  the 
United  Cigar   Stores   Company,   the  equally  rapid 

233 


234  MERCHANDISING 

spread  of  five  and  ten-cent  store  chains  and  the  dis- 
covery that  the  principle  was  apphcable  and  was 
being  apphed  to  drug  stores,  restaurants  and  many 
other  kinds  of  retail  establishments.  The  develop- 
ment seemed  to  burst  into  sudden  flower  during  the 
first  decade  of  the  present  century  and  has  continued 
at  an  increasing  rate  up  to  the  present  time.  A  num- 
ber of  the  largest  chains  have  become  national  in 
scope,  but  most  are  local  or  sectional  and  are  largely 
confined  to  the  East;  many  small  communities  are 
still  unacquainted  with  them.  They  naturally  flour- 
ish with  more  luxuriance  in  the  more  populous  cen- 
ters, but  country  towns  and  even  country  districts 
have  been  reached  by  some  forms,  in  the  last  named 
case  thru  the  traveling  wagons  of  some  one  or  other 
of  the  big  grocery  chains. 

2.  Kinds  of  chains, — Four  distinct  tj^pes  of  chain 
stores  are  observed.  First  come  the  retail  chains 
proper,  such  as  the  F.  W.  Woolworth  Company, 
United  Cigar  Stores  Company,  Childs  Company 
(restaurants)  and  the  Great  Atlantic  and  Pacific  Tea 
Company.  They  were  organized  as  retail  companies 
and  are  still  predominantly  such,  tho  they  may  manu- 
facture more  or  less  of  their  product.  Next  in  im- 
portance are  the  manufacturers^  chains,  which  include 
such  stores  as  Browning,  King  and  Company  (men's 
clothing)  Huyler's  (candy),  W.  L.  Douglass  Shoe 
Company  and  the  Singer  Sewing  Machine  Company. 
A  narrow  interpretation  of  the  term  would  limit 
chain  stores  to  stores  under  one  ownership  and  direc- 


CHAIN  STORES  ^5 

tion  such  as  the  preceding  types,  but  the  term  is 
usually  made  to  include  also  the  retail  cooperative 
associations  such  as  the  United  Drug  Company  (Rex- 
all  stores),  the  American  Druggists  Syndicate  (A. 
D.S.),  and  the  United  Buyers  Service  for  variety 
stores.  Finally,  there  is  the  consumers'  coopera- 
tive type  of  retail  chain  which  consists  of  several 
stores.  Such  chains  are  extremely  powerful  abroad, 
but  are  only  now  being  organized  in  the  United 
States. 

3.  Some  better  known  chains, — The  importance  of 
the  chain  store  can  be  judged  from  the  number  of 
stores  operated  by  some  of  the  better  known  systems 
in  1918.  The  Great  Atlantic  and  Pacific  Tea  Com- 
pany (groceries,  national  in  scope),  almost  4,000 
stores;  American  Stores  Company  (groceries,  sec- 
tional, the  far  East),  about  1,200  stores;  Louis  K. 
Liggett  Company  (operating  Riker-Hegeman,  Ri- 
ker- Jaynes  and  Liggett's  drug  stores  in  Xew  York 
and  Xew  England),  175  stores;  L^nited  Cigar  Stores 
Company  (national),  1,228  stores;  F.  W.  Wool- 
worth  Company  (5-and-lO-cent,  national),  1,000 
stores;  S.  S.  Kresge  Company  (5-and-lO-cent,  na- 
tional), 163  stores;  Baltimore  Dairy  Lunch  (na- 
tional), 120  lunch  rooms;  Childs  Company  (sec- 
tional), 91  restaurants;  J.  C.  Penney  Company 
(smalltown  department  stores,  sectional,  the  far 
West),  197  stores;  Walk-Over  Shoes  Co.  (national), 
60  stores;  Regal  Shoe  Company  (national) ,  55  stores; 
Huyler's  (candies,  sectional,  East),  59  stores;  W.  T. 

V  — 17 


236  MERCHANDISING 

Grant  Company  (25-cent  stores,  sectional,  the  far 
East),  32  stores.^ 

Some  few  years  ago  a  list  was  prepared  of  over 
fifty  different  lines  of  business  in  which  chain  stores 
w^ere  found.  Apart  from  the  corporations  mentioned 
in  the  preceding  paragraph,  the  list  gave  some  other 
important  chains  with  the  number  of  stores  at  that 
time  as  follows:  James  Butler  (groceries,  local.  New 
York),  238  stores;  Scotch  Woollen  Mills  Company 
(tailors,  national),  117  stores;  Gately's  Credit  Cloth- 
ing Company  (national),  115  stores;  Union  News 
Company  (news  stands,  sectional,  the  East),  900 
stands;  Singer  Sewing  Machine  Company  (national), 
800  stores. 

Notable  also  are  the  two  great  retail  buying  asso- 
ciations in  the  drug  field :  The  United  Drug  Company 
(Rexall  stores) ,  stock  in  w^hich  is  owned  by  over  7,000 
druggists  in  all  parts  of  the  country;  and  the  still 
more  extensive  American  Druggists  Syndicate, 
formed  by  an  association  of  27,000  retail  drug  stores. 
Both  of  these  chains,  while  known  partly  as  cooper- 
ative buying  organizations,  also  engage  largely  in 
manufacturing,  and  the  Rexall  stores  have  adver- 
tised their  products  nationally. 

4.  Tendencies  shown  in  chainstore  field. — In  the 
cities  the  progress  of  the  chain -store  movement  has 
reached  a  new  stage — consolidation.  For  example, 
the  large  Kroger  Grocery  and  Baking  Company  of 

1  The  information  here  given  was  courteously  furnished  the  editors  by 
the  respective  organizations. 


CHAIN  STORES  237 

Cincinnati  absorbed  first  the  60  stores  of  a  local  com- 
petitor and  later  another  rival  chain  in  St.  Louis.  In 
1917,  five  grocery  chains  in  Philadelphia  effected  a 
merger  under  the  name  of  The  American  Stores  Com- 
pany, with  a  capitalization  of  $20,000,000.  These  five 
chains  had  nearly  1,300  stores  and  during  the  previous 
year  had  done  a  business  of  $50,000,000. 

A  second  development  is  the  further  expansion  of 
the  United  Cigar  Stores  Company  and  other  chains 
by  means  of  agencies.  This  gives  the  United  Cigar 
Stores,  for  example,  an  immediate,  broad,  national 
market  of  its  own  brands  and  enables  it  to  adver- 
tise them  nationally  which  it  could  not  do  before  on 
account  of  the  limited  number  of  stores  it  had.  These 
agencies  thus  become  in  certain  respects  its.  manu- 
facturer's chain.  Some  chain  store  systems  have 
added  a  mail-order  business,  among  them  being  the 
Kresge  Company  of  Detroit  and  the  J.  C.  Penney 
Company  (Golden  Rule  Stores).  On  the  other 
hand,  the  Larkin  Company  of  Buffalo,  which  for 
years  has  done  a  large  mail-order  business  only,  has 
established  small  retail  "serve  self"  stores  in  Buffalo, 
Peoria,  Chicago  and  Philadelphia. 

One  of  the  most  interesting  tendencies  of  all  is  the 
revealed  popularity  of  the  Piggly  Wiggly  chain  of 
"grocerterias"  or  self-service  groceries  with  headquar- 
ters in  Memphis.  This  chain  not  only  operates  its 
own  stores  at  a  cost  of  10  (in  some  cases  even  S^/o) 
per  cent  as  against  a  usual  12  to  20  per  cent  for 
independent  groceries,  but  it  licenses  others  to  do 


238  MERCHANDISING 

business  under  the  system  and  sells  them  the  equip- 
ment. These  stores,  having  no  salesmen,  naturally 
specialize  in  trade-marked  brands,  which  sell  them- 
selves. Standard  prices  are  cut,  but  no  attempt  is 
made  to  attract  people  on  that  basis.  Apparently, 
the  self-service  idea  is  a  permanent  contribution  to 
retailing. 

5.  Elements  of  strength  in  chain  stores, — As  is  the 
case  with  the  other  large  retail  units,  the  chain  store 
system  possesses  a  large  number  of  elements  of 
strength  balanced  by  other  elements  of  weakness. 
Its  phenomenal  success  over  the  short  period  of  its 
development  renders  a  comparison  of  these  two  sets 

.of  qualities  a  matter  of  much  interest. 

6.  Strength  in  financing. — Comparatively  few  of 
the  chains  have  had  any  help  from  Wall  Street  or  the 
investing  public  in  financing  themselves.  Some  of 
the  very  largest,  like  the  Great  Atlantic  and  Pacific 
Tea  Company,  are  close  corporations.  As  a  rule 
the  successful  chain  has  too  good  a  thing  to  share 
it  with  any  banker  or  promoter.  When  the  large 
chain  will  make  a  sacrifice  of  profits  involved,  it  is 
because  the  compensating  advantages  of  rapid  devel- 
opment are  too  great  to  be  jeopardized  by  delay. 
There  have  been  a  number  of  promotions  of  new 
chains,  but  none  has  made  an  unusual  success  and  most 
of  them  have  already  failed.  All  of  the  chains  that 
are  successful  today  started  with  one  store  and  grew 
slowly  in  the  beginning,  while  financing  themselves 
out  of  their  earnings. 


CHAIN  STORES  239 

7.  Advantages  in  picking  sites. — The  chains  with 
their  many  stores  and  larger  experience  have  a  great 
advantage  over  the  independent  retailer  in  choosing 
locations  for  new  stores.     As  Printers'  Ink  says: 

When  the  individual  retail  merchant  picks  out  a  site,  the 
rental  usually  makes  a  big  hole  in  his  estimate.  Unless  he 
has  real  estate  experience  he  does  not  drive  so  good  a  bar- 
gain with  the  landlord.  Most  merchants,  taking  the  big 
and  little  together,  have  real  estate  transactions  only  once 
or  twice  in  their  lives.  They  are  likely  to  be  doubtful,  cau- 
tious and  conservative  in  selecting  sites,  renting  and  buy- 
ing. The  chain  system,  on  the  contrary,  acquires  experience 
as  it  grows,  and  comes  to  capitalize  this  into  standard  prac- 
tices. It  is  able  to  select  its  cities,  its  neighborhoods,  its 
sites,  with  speed  and  precision.  The  dickering  for  lease  or 
sale  is  done  by  experienced  men. 

In  short,  the  chains  know  the  best  locations  and 
get  them.  Frequently  they  take  leases  years  ahead 
of  occupation.  In  order  to  get  the  corner  sites  it 
prefers,  the  United  Cigar  Stores  Company  some- 
times leases  or  even  buys  an  entire  building,  leasing 
the  portion  it  does  not  require.  The  realty  operations 
of  the  United  Cigar  Stores  Company,  conducted  thru 
a  subsidiary  company,  are  highly  profitable.  The 
Company  was  said  some  years  ago  to  be  selling  its 
products  at  cost  and  paying  its  dividends  solely  out 
of  its  real  estate  transactions. 

The  common  method  of  fixing  on  a  location  in 
a  city  is  to  count  the  passing  crowds,  say  with  a  regis- 
ter, and  then  consider  the  figure  in  the  light  of  the 
crowd's  character,  whether  high  or  low  class,  local 
or  transient,  rush  or  steady.     One  side  of  a  street 


240  MERCHANDISING 

is  generally  better  than  the  other.  Information  of 
this  sort  is  of  little  use  to  an  independent  retailer, 
but  it  is  a  strong  weapon  in  the  hands  of  the  chains. 

8.  Standardization  of  stores. — The  uniform  store 
fronts  of  the  United  Cigar  Stores,  of  Woolworth's, 
the  Owl  and  the  Liggett  drug  stores  give  each  indi- 
vidual store  a  prestige  and  attractive  quality  that 
it  would  not  have  alone,  and  that  the  independent 
store  does  not  have.  Inside  the  store,  standardization 
is  of  the  greatest  help  in  arranging  the  display  of 
the  goods,  selling  them  and  taking  stock.  A  United 
Cigar  Store  clerk  could  walk  into  any  United  Store 
in  the  country  and  find  himself  at  home  in  it.  The 
arrangement  of  stock  is  practically  the  same  in  all. 
This  was  primarily  to  assist  in  the  opening  of  new 
stores  and  to  facilitate  the  taking  of  inventories,  but 
it  helps  in  all  ways.  When  all  the  store  interiors 
and  windows  are  standardized,  the  company  can 
afford  to  secure  a  high  class  display  man  to  work  up 
ideas  for  them  systematically.  The  ordinary  dealer 
has  no  such  opportunity.     It  is  a  chain  advantage. 

9.  Standardization  of  selling  methods, — The  chain 
completely  outclasses  the  ordinary  store  in  its  selling 
methods.  The  average  independent  proprietor  may 
be  an  able  salesman,  but  few  of  his  clerks  have 
ability  and  still  fewer  get  any  adequate  instruction  and 
drilling  in  sales  procedure.  The  chains  have  reduced 
this  instruction  nearly  to  a  science.  The  man  in 
charge  of  the  work  is  generally  an  officer  of  the  com- 
pany.    Standardization  of  methods  reduces  to  a  mini- 


CHAIN  STORES  241 

mum  the  initiative  required  of  salespeople  and  also 
dispenses  with  a  large  amount  of  supervision.  Under 
such  circumstances,  comparatively  low-salaried  clerks 
may  therefore  be  employed  in  some  types  of  chains 
for  both  selhng  and  supervising,  and  this  is  one  of 
the  objects  of  standardization.  In  many  chains,  how- 
ever, the  selling  ability  required  and  the  salaries  paid 
compare  favorably  with  those  of  the  independents 
in  the  same  line. 

10.  Buying  advantages. — It  is  in  buying  that  the 
chain  has  the  greatest  advantage  over  its  independent 
competitor.  The  large  volume  of  its  purchase  makes 
it  a  preferred  customer  with  many;  it  gets  the  first 
chance  at  many  lots  the  independent  stores  never  see. 
Of  course,  it  buys  direct  and  can  often  swing  deals  the 
jobbers  cannot  touch.  In  many  lines,  the  chains  offer 
a  ready  market  to  manufacturers  with  surplus  stock 
on  their  hands  which  they  wish  to  turn  quickly  into 
cash. 

Because  of  their  ability  to  buy  direct  from  manu- 
facturers many  chains  credit  themselves  with  a  job- 
bing profit  on  their  books  and  bill  goods  to  the  indi- 
vidual stores  at  a  price  to  cover  it.  In  this  way, 
they  do  an  excellent  business  on  their  jobbing  profit 
alone,  without  considering  the  profit  made  by  their 
stores. 

A  large  chain  store  system  can  employ  high-priced, 
skilful  buyers  in  all  important  markets  to  pick  up 
bargains  and  novelties;  it  can  command  sources  of 
supply  and  obtain  goods  when  independents  find  it 


M2  MERCHANDISING 

impossible  to  get  them;  and  it  can  afford  to  take 
chances  on  new  kinds  of  merchandise  which  the  inde- 
pendent would  be  unwilHng  or  unable  to  take. 

Different  methods  of  buying  are  in  vogue.  In 
most  chains,  all  of  the  buying  is  done  at  headquarters. 
In  other  chains,  in  which  Liggett's  Drug  Company 
is  a  type,  while  most  of  the  buying  is  done  at  head- 
quarters, the  store  managers  are  allowed  a  good  deal 
of  latitude  in  the  way  of  special  deals  and  the  compe- 
tition between  the  different  stores  is  often  productive 
of  great  enterprise  and  excellent  results  in  service. 
It  was  a  chain  drug  store  manager  in  New  York 
who  added  umbrellas  as  a  permanent  line  and  another 
who  made  a  market  for  nuts  and  eggs. 

The  chains  secure  all  the  usual  advantages  of  big 
buyers — "inside  prices,"  secret  discounts,  long  "dat- 
ings"  on  bills — goods  being  delivered,  for  example, 
in  January  and  the  bills  dated  March  1, — "cash 
discounts"  in  30  days  and  more,  etc.  If  a  chain 
system  turns  its  stock  twelve  times  a  year — and  many 
of  them  do  better  than  that— and  discounts  its  bills 
in  thirty  days  as  "cash,"  it  is  actually  settling  "as 
sold,"  which  is  certainly  a  great  advantage  over  the 
independent  who  can  get  his  cash  discount  only  when 
he  pays  in  ten  days  and  who  may  not  be  able  to  dis- 
pose of  the  stock  for  three  or  four  months. 

11.  Pricing, — Quantity  buying  and  rapid  turnover 
enable  the  chains  to  fix  their  prices  at  a  generally 
lower  level  than  that  of  the  average  independent 
store.     As  to  cutting  prices  on  standard,  advertised 


CHAIN  STORES  24? 

brands,  the  practice  is  not  uniform.  Probably  most 
chain  stores  have  been  confirmed  price-cutters.  But 
even  before  the  war,  there  was  a  marked  tendency 
developing  to  get  away  from  price  as  a  major  appeal. 
Like  the  department  stores,  the  chains  had  begun 
to  feel  that  with  advantages  in  location,  size  and  var- 
iety of  stock  and  service  to  serve  as  a  solid  basis  for 
good-will,  it  was  a  mistake  to  continue  harping  on 
price,  which  is  a  wabbly  foundation  at  best.  Many 
chains  now  meet  cuts  but  do  not  inaugurate  them. 

12.  Use  of  loss  leaders, — When  the  chain  store  sac- 
rifices the  price  profit  on  standard  nationally  adver- 
tised goods,  it  intends  to  make  up  the  loss  from  profits 
secured  on  its  own  brands  and  on  unbranded  goods 
sold  to  the  people  attracted  by  the  cut  price  Offers. 
Some  chains  offer  these  "loss  leaders"  constantly, 
others  do  so  only  at  times.  The  practice  is  not  con- 
fined to  the  chains.  As  we  saw,  department  stores, 
mail-order  houses  and  even  independent  retailers  also 
follow  the  practice.  The  object  is  to  create  an  im- 
pression that  all  goods  are  similarly  low  priced. 

13.  Low  eoopense  of  operation, — Chain  stores  are 
commonly  thought  to  operate  on  a  low  expense  basis 
which  makes  possible  low  prices  to  consumers.  This 
is  more  or  less  true.  The  chain  store,  for  example, 
usually  carries  a  minimum  of  stock,  replenishing  it 
constantly  from  a  central  warehouse.  The  capital 
allotted  to  each  store,  therefore,  is  not  tied  up  in  excess 
goods.  Storing  goods  in  a  warehouse  is  cheaper  or- 
dinarily than  storing  them  on  the  shelves  of  a  store. 


244  MERCHANDISING 

Where  several  units  of  a  chain  of  stores  are  located 
in  one  city,  the  city  superintendent  has  better  facili- 
ties for  accurately  measuring  future  demand  and 
making  ample  provision  for  it  than  has  the  buyer  for  a 
single  independent  store. 

14.  Other  advantages, — Many  chains  do  not  deliver 
purchases.  The  Great  Atlantic  and  Pacific  Tea 
Company,  for  example,  makes  deliveries  from  its  or- 
dinary stores  and  does  not  make  deliveries  from  its 
newer  type,  or  "Economy  stores."  When  chains 
make  deliveries  it  is  usually  only  for  purchases  above 
a  certain  amount,  while  a  few  make  a  charge  for  de- 
livery. The  great  majority  of  chains  do  a  strictly 
cash  business.  This  saves  the  cost  of  keeping  book 
accounts  and  making  collections,  and  avoids  credit 
losses. 

While  the  general  office  expenses  of  a  chain,  such 
as  salaries  to  higher  officials  and  to  buyers,  are  high 
in  the  lump,  they  are  small  per  unit,  that  is,  when 
distributed  over  all  the  stores.  No  figures  are  availa- 
ble to  show  what  these  are  compared  with  the  expenses 
of  the  individual  independent.  They  vary  greatly  in 
different  lines.  Piggly  Wiggly  self-service  groceries, 
as  said,  do  business  at  a  reputed  cost  of  10  per  cent  as 
against  a  usual  12  to  20  per  cent  for  independent 
groceries.  A  chain  of  small  dry  goods  stores,  it  is 
asserted,  has  done  business  on  an  expense  basis  of  8 
per  cent.  As  compared  with  an  expense  basis  of 
from  15  to  25  per  cent  for  independents  this  is  ex- 
ceedingly low.     Chain  cigar  stores  are  said  to  have 


CHAIN  STORES  '       ^45 

done  equally  well.  But  these  are  exceptional  records 
in  most  fields.  It  is  not  likely  that  the  average  chain 
store  expense,  however,  is  much  below  that  of  the  in- 
dependent store,  since  it  is  not  now  killing  off  the 
independent  as  fast  as  was  the  case  a  few  years  ago. 
Of  course,  some  chains  operate  on  a  higher  expense 
basis  than  that  of  the  independents,  such  stores  for 
example  as  the  Page  and  Shaw  candy  stores,  or  the 
Park  and  Tilford  groceries,  which  cater  to  high-grade 
customers. 

15.  Quick  turnovers  and  low  profits, — The  chains 
early  recognized  the  A.  B.  C.  of  good  retailing — 
small  profits  and  quick  sales  with  a  resultant  rapid 
turn  of  capital.  As  an  illustration  of  the  importance 
of  this  principle,  let  us  imagine  a  store  that  normally 
carries  a  stock  worth  $5,000  at  the  seUing  price  and 
turns  it  four  times  a  year  with  an  average  of  40  per 
cent  profit  on  each  sale.  The  gross  profit  on  one 
turnover  of  stock  would  be  $2,000  and  the  total  yearly 
gross  profit  $8,000.  But  suppose  the  management 
got  new  light  on  merchandising  and  concluded  to 
take,  not  40,  but  only  30  per  cent  gross  profit  on  each 
sale  and  that  sales  increased  on  account  of  the  low- 
ered price,  as  they  generally  do  in  a  competitive  mar- 
ket, thus  turning  the  stock  to  six  instead  of  four  times 
a  year.  Its  annual  gross  profit  in  this  case  would  be 
$9,000  as  against  $8,000  in  the  former  instance.  The 
increase  in  net  profit  might  be  even  greater,  since  the 
percentage  of  cost  of  doing  business  goes  down  with 
every  new  turn. 


^46  MERCHANDISING 

The  chain  stores'  rate  of  turnover  appears  to  still 
greater  advantage  when  compared  with  that  of  inde- 
pendents. For  example,  the  average  independent 
grocery  store  turns  its  stock  ten  or  twelve  times  a 
year;  the  Bowers  chain  of  groceries  in  Memphis  turn 
theirs  forty  times  a  year.  The  average  grocery  takes 
a  gross  profit  on  each  sale  of  25  per  cent  and  a  net 
of  from  5  to  8  per  cent;  the  Bowers  stores  take  a 
gross  of  12/4  per  cent  and  a  net  of  2  per  cent.  The 
average  drug  store  turns  its  stock  twelve  times  a 
year.  The  more  alert  independent  tobacco  stores 
turn  their  stocks  sixteen  to  twenty  times  a  year. 
Some  of  the  United  Cigar  Stores,  however,  have 
shown  stock  turns  of  fifty  times  a  year,  or  almost  a 
turnover  a  week. 

It  is  well  to  bear  in  mind  that  the  rapidity  with 
which  the  chain  store  turns  its  stock  is  not  due  solely 
to  low  prices.  Store  service,  the  qualitj^  of  the  goods, 
and  sometimes  advertising  have  their  influence. 

16.  Strength  of  service. — The  chain  stores  lay  no 
more  stress  upon  price  than  they  do  upon  service. 
Many  chains  give  particular  attention  to  complaints 
and  in  other  ways  endeavor  to  satisfy  the  customer 
and  encourage  his  continued  patronage.  The  cour- 
teous "thank  you"  attitude  of  some  chain-store  clerks 
is  noteworthy. 

This  sort  of  service  is  not  confined  to  chain-store 
selling.  It  was  in  practice  before  the  chains  came  into 
existence.  The  chains,  however,  have  developed  it 
consciously   and   systematically.     Any    independent 


CHAIN  STORES  247 

dealer  with  a  right  conception  of  modem  merchan- 
dising can  do  the  same. 

17.  Strength  in  organization, — Chains  are  organ- 
ized in  two  ways : 

If  they  make  their  appeal  on  a  basis  of  price,  the 
emphasis  is  laid  on  methods  rather  than  on  men.  One 
chain  store  official  has  said:  "The  world  has  been  try- 
ing to  get  things  done  by  selecting  men  and  trusting 
them  unaided  to  do  its  work.  Instead,  someone  in 
authority  should  first  find  the  thing  to  be  done,  then 
find  the  best  way  to  do  it,  and  finally  teach  the  men 
to  do  it  in  that  way."  This  is  the  essence  of  scientific 
management.  When  too  strictly  applied,  however, 
this  principle  removes  almost  all  initiative  from  the 
salespeople  and  concentrates  it  at  headquarters,  on 
the  theory  that  the  development  of  mechanical  effi- 
ciency in  an  organization  is  more  valuable  than  the 
development  of  individual  initiative.  The  danger  of 
carrying  this  view  to  the  extreme  is  that  it  may  de- 
prive the  work  of  much  of  its  interest  and  so  impair 
the  efficiency  it  is  desis^ned  to  promote. 

The  second  form  of  organization  grants  to  the  store 
managers  and  salespeople  a  large  measure  of  indi- 
vidual initiative.  It  tries  to  develop  ability  and  to 
stimulate  personality  in  every  way  without  losing  any 
of  the  efficiency  that  comes  with  careful  organization. 

Both  types  of  organization  are  alike  in  having  high- 
salaried  men  in  executive  positions  to  study,  plan, 
and  direct  the  work  of  subordinates.  This  advantage 
the  independent  can  seldom  command.     While  the 


^48  MERCHANDISING 

high-salaried  executive  in  the  home  office  may  not 
be  able  in  every  instance  to  have  the  subordinate  in 
a  distant  chain  store  carry  out  his  policies  to  the  let- 
ter>  yet  he  can  as  the  result  of  his  cooperation  with 
the  individuals,  put  their  performance  on  a  higher 
level  than  they  would  be  able  to  reach  without  assist- 
ance. The  cost  of  his  services  is  spread  over  many 
stores  and  adds  little  to  the  expenses  of  any. 

18.  Advantages  in  advertising, — The  chains  have 
a  number  of  advertising  advantages.  The  mere 
number  of  their  stores,  their  standardized  fronts,  win- 
dow displays  and  private  brands  are  a  continual  ad- 
vertisement suggesting  popularity  and  low  prices — 
two  things  which  always  attract  trade. 

If  the  chain  advertises,  it  employs  the  services  of 
a  high  class  advertising  manager  to  prepare  and  to 
place  advertisements  for  all  the  stores.  He  also  aids 
the  local  store  manager  in  preparing  occasional  adver- 
tisements for  purely  local  purposes.  Some  chains  do 
not  advertise  in  newspapers  or  magazines,  but  use 
premium  coupons  and  trading  stamps  either  to  pocket 
an  extra  profit  on  the  coupons,  or  else  pass  the  sav- 
ing on  to  the  customer  in  the  form  of  greater  premium 
value. 

As  compared  with  the  chains,  the  independent  re- 
tailer is  at  a  disadvantage  in  advertising.  He  often 
is  inexperienced  and  has  no  one  to  analyze  his  adver- 
tising problem,  or  advise  him  how  to  plan  his  adver- 
tising copy,  where  to  place  it  and  how  often  or  how 


CHAIN  STORES  Md 

long  to  use  it.  Besides,  he  may  not  be  able  to  adver- 
tise on  a  large  scale. 

19.  Advantages  of  accounting  methods, — Finally, 
the  chain  has  a  great  source  of  strength  in  its  account- 
ing system.  Accounting  is  made  use  of  constantly 
in  directing  selling  campaigns  and  in  checking  up 
and  comparing  the  stock  and  sales  of  separate  stores. 
It  shows  which  lines  are  profitable  and  which  are  not, 
directs  attention  to  wastes,  gives  accurate  costs  and 
presents  other  data  which  are  vital  to  successful  re- 
tailing. 

This  is  a  place  at  which  many  independent  retailers 
fall  down.  Too  few  have  any  real  knowledge  of 
accounting  methods.  Most  druggists,  for  instance, 
are  primarily  professional  men  and  are  merchants 
only  incidentally.  Many  retail  grocers  have  for- 
merly been  store  salesmen  and  have  hardly  a  speaking 
acquaintance  with  bookkeeping.  Besides  thousands 
of  persons  have  opened  up  stores  as  a  means  of  invest- 
ing their  savings  tho  having  at  the  same  time  no 
business  training. 

This  condition  of  affairs  in  the  retail  field  is  so 
serious  an  impediment  to  manufacturers  depending 
upon  it  for  the  distribution  of  their  goods,  that  many 
of  them  have  undertaken  individually,  collectively, 
and  thru  what  influence  they  could  exert  on  the  trade 
journals  and  the  universities  to  better  it.  Since  sound 
principles  of  accounting  are  at  the  very  root  of  sound 
business,  most  of  their  efforts  to  help  have  taken  the 


250  MERCHANDISING 

form  of  systematic  instruction  in  the  principles.  This 
will  tend  to  redress  the  balance  now  swinging  against 
the  independents. 

20.  Weaknesses  of  chain  stores. — Few  chains  that 
have  once  reached  a  paying  basis  ever  fail.  The  very 
difficulties  in  the  way  of  expansion  point  out  the  safe- 
guards. But  many  fail  in  their  attempts  to  start. 
The  causes  of  these  failures  may  be  reduced  to  one, 
precipitate  and  premature  expansion.  Every  chain 
that  is  successful  today  started  with  one  store  and 
developed  slowly.  The  reason  for  the  slow  develop- 
ment was  not  so  much  a  lack  of  capital  in  any  case 
as  the  need  of  perfecting  the  required  system  of  man- 
agement or  supervision  and  the  development  of  local 
managers.  Once  these  difficulties  were  surmounteU 
in  any  chain,  the  expansion  became  safe  and  rapid 
and  capital  was  procurable. 

The  problem  with  respect  to  local  managers  is  in 
the  case  of  many  chains  one  of  making  a  low-grade 
man  do  high-grade  work,  in  that  of  other  chains 
of  keeping  high-grade  men  at  low-grade  salaries. 
In  the  one  case,  this  is  accomplished  by  a  system  of 
standards.  In  the  other  case,  the  high-grade  men 
sacrifice  something  in  salary  and  immediate  oppor- 
tunity in  order  to  get  the  splendid  training  and  also 
to  learn  the  chain  methods.  Both  cases  reveal  the 
weaknesses  of  the  chain.  The  strain  on  low-grade 
managers  with  increasing  competition  can  only  be 
lightened  by  increasing  supervision,  which  is  expen- 
sive.    The  increase  of   standardization  and  super- 


CHAIN  STORES  251 

vision  turns  the  high-grade  employes  into  independent 
competitors. 

The  same  condition  applies  to  all  the  employes. 
The  chain  can  offer  but  few  opportunities  for  much 
advancement,  since  the  tendency  is  towards  central- 
ization, standardization  and  reduction  of  costs. 

21.  Meeting  chain-store  competition, — The  inde- 
pendent retailer  without  previous  experience  in  chain 
store  competition  generally  views  the  approach  of  the 
chain  store  as  a  personal  calamity.  In  this  he  may  not 
be  altogether  wrong.  It  depends  upon  how  good  a 
merchant  he  is.  The  chains  certainly  have  killed  off 
hundreds  and  thousands  of  independent  retailers. 
But  most  of  these  were  not  abreast  of  the  times.  The 
wideawake  retailer  need  not  despair  at  the  menace  of 
the  chain,  but  he  will  certainly  be  wise  to  act  before 
the  chain  store  entrenches  itself  and  steals  away  his 
trade.  He  should  lose  no  time  in  joining  a  buying  as- 
sociation or  taking  some  other  steps  to  secure  his  stock 
more  cheaply.  He  should  copy  all  he  can  of  the  chain 
store's  strong  points  and  invent  new  services  to  take 
the  place  of  those  he  cannot  adopt.  The  greatest  help 
will  be  found  in  trade  association  meetings,  where 
ways  and  means  of  combating  the  chains  are  continu- 
ally being  discussed  and  information  of  great  practical 
value  exchanged.  These  associations  are  the  great- 
est competitors  the  chains  are  likely  to  meet  in  the  end. 
They  are  in  their  infancy  now,  but  when  they  develop 
on  a  national  scale  it  is  hard  to  see  how  the  chains 
will  be  able  to  meet  them. 

V  — 18 


252  MERCHANDISING 

While  it  is  impossible  at  present  for  all  retail  dealers 
to  join  cooperative  groups  on  account  of  the  lack  of 
complete  organization,  and  hence  to  meet  the  chains 
on  the  basis  of  price  alone,  nevertheless,  they  are  far 
from  being  doomed.  Price  is  only  one  kind  of  serv- 
ice; there  are  many  others  and  few  that  are  open  to 
the  chain  store  to  give  so  well  as  the  independent. 
As  one  chain  store  official  has  said; 

The  chain  store  may  be  able  to  undersell  the  independent, 
but  it  can't  "overserve"  him.  The  small  profits  of  the 
chain-store  business  necessitate  the  most  rigid  economy  in 
operating — economy  which  must  be  extended  to  the  labor 
item.  The  labor  item  is  an  almost  insolvable  one  for  the 
chain  store,  for  low  wages  and  loyalty  rarely  go  hand  in 
hand.  The  chain  is  likely  to  be  deficient  in  two  great  fun- 
damentals— personality  and  personal  service — and  these  are 
the  independent  retailer's  salvation. 

22.  What  the  chain  may  teach, — Keen-sighted  busi- 
ness men  have  come  to  welcome  the  competition  of 
the  chain  store.  It  has  been  a  sort  of  business  evan- 
gelist— ^waking  up  the  trade,  raising  the  level  of  re- 
tail efficiency  and  stimulating  the  buying  public  into 
buying  new  things  and  more  things.  If  the  chain 
store  has  done  nothing  else  it  has  served  to  educate 
the  retail  merchant.  The  dealer  who  is  alert  and 
studies  the  methods  of  his  chain- store  competitor  canr 
not  fail  to  become  a  better  merchant.  He  will  also 
become  a  formidable  competitor  of  the  chain  on  its 
own  basis  of  service.  Any  dealer  may  adopt  the 
methods  used  by  chain  stores  to  cut  down  expenses 
except,  of  course,  those  which  are  part  of  large-scale 


CHAIN  STORES  253 

organization.  It  is  the  merchant  who  refuses  to 
change  his  methods  of  merchandising,  who  prefers  to 
complain  rather  than  to  compete,  that  needs  to  fear 
the  chain  store.  The  individual  store  owner  can  rest 
secure  in  knowing  that  his  business  is  molded  by  him- 
self, that  it  reflects  his  personality  and  if  his  person- 
ality is  sufliciently  strong  he  can  gain  a  hold  upon  his 
trade  that  the  paid  manager  of  one  link  in  a  great 
chain  can  never  hope  to  secure. 

23.  Chain  stores  and  the  manufacturer, — The 
manufacturer  is  never  indifferent  to  chain  stores  and, 
depending  upon  the  class  of  manufacturing  he  is  do- 
ing, he  is  either  suspicious  or  favorable  to  their  devel- 
opment. He  is  suspicious,  and  at  times  even  hostile, 
if  he  is  a  manufacturer  of  nationally  advertised  goods, 
for  the  reason  that  many  chains  are  price-cutters  and 
push  their  own  brands  in  competition.  The  fact,  too, 
that  they  are  close  buyers  and  powerful,  into  the  bar- 
gain, has  not  endeared  them  to  all  manufacturers. 

The  manufacturer  of  unbranded  or  privately- 
branded  articles,  however,  sees  in  the  chain  a  tre- 
mendous outlet  for  his  stock  of  goods.  He  figures 
that  the  chains  handle  an  enormous  amount  and  a 
wide  variety  of  manufactured  products  which  some 
one  must  supply.  While  some  chains  manufacture 
part  of  their  goods  thru  owned  or  controlled  factories, 
it  is  not  conceivable  that  these  factories  will  supplant 
in  more  than  a  small  measure,  the  need  of  goods  from 
independent  manufacturers  at  least  for  some  years 
to  come.     The  chain,  therefore,  offers  quick,  sure  and 


254  MERCHANDISING 

profitable  markets  for  the  products  of  many  manu- 
facturers and  should  be  considered  as  possible  channels 
by  every  manufacturer  who  has  a  line  of  goods  suit- 
able for  chain-store  trade. 

REVIEW 

May  the  chain  store  principle  be  applied  to  any  line  as  it  has 
to  groceries,  clothing,  etc.? 

What  has  been  the  general  effect  of  chain-store  development 
upon  the  manufacturer,  the  jobber,  and  the  retailer? 

What  are  the  many  advantages  which  chain  stores  have  over 
the  independent  dealer? 

What  are  the  weaknesses  of  chain  stores? 

If  you  were  a  retail  grocer  and  learned  that  the  Atlantic 
and  Pacific  chain  was  about  to  open  a  store  next  door  to  you, 
what  would  you  do? 


CHAPTER  VII 

MAIL-ORDER  SELLING 

1.  Significance  of  mail-order  development. — By 
mail-order  business  is  usually  meant  business  received 
from  the  public  by  mail,  whether  it  is  obtained  by 
means  of  catalogs,  by  periodical  advertising  or  by 
some  form  of  direct-by-mail  advertising.  The  busi- 
ness obtained  in  this  way  by  manufacturers  and  sup- 
ply houses  from  other  manufacturers  and  from  mid- 
dlemen is,  strictly  speaking,  mail-order  business,  but 
it  is  small  as  compared  with  the  business  done  by 
other  houses  with  the  public.  Most  mail-orders 
come  from  catalogs,  and  the  large  mail-order  houses 
are  also  known  as  catalog  houses.  Practically  all 
mail  order  houses  advertise  or  utilize  lists  to  dis- 
tribute their  catalogs,  which  are  generally  elaborate, 
containing  full  and  precise  descriptions  of  the  whole 
line,  with  illustrations,  some  of  them  in  color,  of  the 
leading  articles,  such  as  cloaks  and  suits,  shoes,  hats, 
etc.  Some  houses  use  one  large  catalog  and  supple- 
mentary departmental  catalogs.  Others  distribute 
smaller  seasonal  catalogs  four  or  six  times  a  year. 
The  largest  catalogs  are  expensive,  and  some  houses 
have  charged  a  price  for  them.  Nowadays,  they  are 
generally  regarded  as  the  best  kind  of  advertising 

255 


256  MERCHANDISING 

and  every  effort  is  made  by  the  houses  to  induce  cus- 
tomers to  consult  them  regularly  and  for  every  want. 

In  its  beginning,  mail-order  advertising  was  di- 
rected at  the  rural  and  small  town  sections  which  were 
imperfectly  served  by  the  country  stores.  A  variety 
of  articles  such  as  it  was  impossible  for  the  country 
stores  at  that  time  to  think  of  carrying  were  offered 
by  catalog  houses  at  prices  which  generally  underbid 
the  stock  which  local  dealers  carried  and  proved 
equally  attractive  on  those  articles  they  did  not  stock. 
At  the  same  time  the  styles  and  fashions  of  the  large 
centers  were  carried  to  every  nook  and  corner  of  their 
country.  People  got  more  and  better  goods  for  the 
money.  New  wants  were  suggested  and  new  ways 
of  satisfying  them  were  provided.  All  over  the  coun- 
try, in  the  smaller  districts  and  humbler  homes,  the 
mail-order  catalog  was  the  advance  agent  for  the 
popular  magazine  which  came  later  and  helped  to 
forward  the  work  of  education. 

The  dealers  in  these  small  places  were  at  first  hard 
hit  by  catalog  selling  and  a  loud  outcry  went  up  for 
legislature  to  curb  it.  This  has  now  died  out  in  most 
sections.  Mail-order  competition  has  forced  the  small 
dealers  to  wake  up  and  improve  their  methods  and 
service  to  their  communities  and  in  some  cases  it  has 
given  them  more  business  than  they  ever  had  before. 
In  some  instances,  all  the  dealers  in  a  town  or  a  section 
have  combined  to  fight  it.  In  others,  dealers  organize 
buying  associations.  The  public  has  been  shown  that 
if  it  will  pay  cash  for  all  the  goods  that  it  buys  from 


MAIL-ORDER  SELLING  «57 

the  dealers  as  it  has  to  do  when  it  buys  from  the  mail- 
order house,  and  will  order  thru  the  dealer  when  the 
dealer  does  not  stock  the  article  or  is  out  of  it,  they 
can  get  the  same  goods  at  substantially  the  same 
prices,  assure  a  better  permanent  local  variety  of  stock 
and  help  their  home  communities. 

Of  late  years  the  mail-order  houses  have  been  get- 
ting a  hold  on  the  city  and  suburban  sections.  One 
reason  is  that  the  cost  of  living  being  higher  in  the 
cities  than  in  the  country,  many  city  dwellers  are  or- 
dering from  the  low-priced  goods  in  the  catalogs. 
Another  reason  is  the  decline  in  the  service  formerly 
given  by  the  department  stores.  Furthermore,  it  is 
actually  less  trouble,  in  many  cases,  to  go  shopping 
thru  a  mail-order  catalog  for  goods  of  a  more  or  less 
staple  character  and  order  by  mail  than  it  is  to  shop 
in  the  crowded  department  stores  of  the  city.  A 
catalog  will  often  contain  more  information  than  a 
clerk  can  or  will  give. 

2.  Extent  of  mail  selling, — Some  idea  of  the  extent 
of  mail-order  selling  may  be  gained  from  the  fact  that 
the  total  sales  of  Sears,  Roebuck  and  Company  for 
1918  were  running  at  about  $130,000,000  and  Mont- 
gomery, Ward  and  Company  $45,000,000.  These 
two  stores  taken  together  are  estimated  to  cover  over 
40  per  cent  of  the  exclusively  mail-order  retailing  in 
the  United  States  for  that  year.  Some  distance  below 
them  are  other  well-known  houses  such  as  the  National 
Cloak  and  Suit  Company,  the  Standard  Mail-Order 
Company,  Charles  William  Stores,  Bellas,  Hess  & 


258  MERCHANDISING 

Company  and  the  Larkin  Company.  Estimates  vary 
as  to  the  relation  of  this  business  to  the  total  retail 
volume;  the  figure  most  often  mentioned  being  6  per 
cent.  If  we  take  that  figure  as  giving  the  total 
amount  of  sales  of  the  leading  mail-order  establish- 
ments for  the  year  and  add  to  it  similar  figures  for 
the  countless  number  of  little  local  mail-order  houses, 
direct-selling  manufacturers  and  retail  stores  doing 
this  form  of  business,  we  shall  have  a  sum  probably 
not  far  from  half  a  billion  dollars. 

3.  Ketailer's  attitude  toward  mail-order  selling, — 
As  in  other  forms  of  merchandising,  the  attitude 
taken  toward  mail-order  selling  depends  largely  upon 
the  class  which  speaks.  The  retailer  often  sees  in  the 
mail-order  house  a  strong  and  feared  competitor.  He 
finds  frequently,  also,  that  it  has  created  new  wants 
among  consumers  which  he  gets  an  opportunity  to 
satisfy. 

The  attitude  of  most  retailers  has  one  peculiar  fea- 
ture. Some  of  their  associations  have  adopted  reso- 
lutions against  the  mail-order  house,  maintaining  that 
it  is  threatening  the  whole  economic  structure  of  the 
country  and  breaking  down  the  local  retail  market 
which  is  the  basis  of  most  American  business.  They 
assume  that  it  is  an  economic  wrong  for  a  large  organ- 
ization to  do  a  successful  business  entirely  by  mail,  but 
that  it  is  not  wrong  for  the  small  dealer  both  to  sell  over 
the  counter  and  also  to  do  as  much  mail-order  busi- 
ness as  he  pleases.  It  is  only  when  he  gets  to  tread- 
ing   on  the  toes  of  retail  dealers  outside  of  "his" 


MAIL-ORDER  SELLING  259 

territory  that  he  becomes  in  their  eyes  "dangerous." 

4.  Jobber's  attitude, — Most  mail-order  houses  buy 
direct  from  the  manufacturer  and  thus  lessen  the  flow 
of  goods  thru  the  jobbers'  warehouses  at  least  im- 
mediately. The  trade  of  the  small  dealer  in  country 
communities  is  at  first  reduced  and,  as  these  dealers 
are  the  mainstay  of  the  jobbers,  a  decrease  in  their 
trade  means  less  trade  for  the  jobbers.  It  is  true 
that  catalog  selling  stimulates  business  in  the  end  and 
produces  more  of  it  for  the  dealers,  but  this  is  no  gain 
for  the  jobbers  if  the  dealers  combine  to  get  lower 
prices  and  then  buy  direct  from  the  manufacturers. 

5.  Manufacturer's  attitude, — Many  catalog  houses 
manufacture  part  of  their  goods  and  thus  compete  di- 
rectly with  manufacturers  in  th6se  lines,  but  as  they  do 
not  manufacture  all  they  sell  and  prefer  in  every  case 
to  buy  rather  than  manufacture,  many  manufac- 
turers see  in  them  a  large  and  greater  market  for  many 
kinds  of  merchandise. 

The  extent  of  this  opportunity  is  shown  by  an  ar- 
ticle in  Printers'  Ink,  in  which  the  author  estimates 
that  six  per  cent  of  all  commodities  sold  in  the  United 
States  are  sold  by  mail.  The  writer  says  in  conclu- 
sion : 

It  follows,  therefore,  that  many  hundreds  of  factories  can 
elect  to  make  goods  primarily,  if  not  exclusively,  for  mail- 
order distribution.  They  may  canvass  both  fields.  They 
will  find  that  the  old  jobber-retailer  channels  are  compara- 
tively expensive  to  enter  in  a  large  way,  and  that  buyers 
therein  are  perhaps  slow  to  respond;  but  that  such  channels 
supply    a    stable   outlet,    once   they    are   properly    entered. 


mo  MERCHANDISING 

They  may  discover  that  it  is  much  easier  and  less  expensive 
to  enter  the  field  of  mail-order  manufacture,  but  they  are 
likewise  apt  to  learn  that  therein  lies  insecurity,  anxiety  and 
the  fiercest  competition  with  those  who  seek  to  cut  costs  to 
the  bleeding  point.  Whatever  they  may  decide,  by  what- 
ever process  of  reasoning  or  the  taking  of  a  blind  chance, 
the  choice  is  there  today;  there  is  plenty  of  room  in  the  six 
per  cent  field. 

Having  in  mind  the  patent  facts  before  us,  it  certainly 
does  not  seem  to  be  the  part  of  wisdom  for  any  manufac- 
turer, jobber  or  retailer  to  rest  on  his  oars  in  fancied  se- 
curity, feeling  that  the  rapid  development  of  the  mail-order 
business  is  not  a  matter  of  special  interest  to  him.  For  it 
is,  in  fact,  of  vital  interest  to  every  manufacturer  and  dis- 
tributor, big  and  little.  And  right  now  is  the  time  to  think 
about  it  and  mpst  diligently  to  study  its  trend. 

The  catalog  houses,  however,  meet  the  opposition  of  the 
manufacturers  when  they  cut  prices  on  the  latter's  trade- 
marked  and  nationally  advertised  goods. 

6.  Attitude  of  the  public. — Public  opinion  toward 
mail-order  selling  runs  the  whole  gamut  of  sentiment 
from  abuse  to  praise.  In  any  consideration  of  the 
subject,  there  are  certain  questions  which  should  re- 
ceive careful  and  unbiased  attention.  These  are  the 
nature  of  mail-order  selling,  why  goods  are  sold  in 
this  way;  the  question  of  legitimacy,  the  points  of  com- 
petitive strength  and  points  of  weakness;  how  the 
local  store  can  compete  and  why  it  fails. 

7.  Kinds  of  mail  selling, — There  seems  to  be  a  pre- 
vailing opinion  that  mail  selling  is  exclusively  "big 
business."  This  is  not  so.  While  many  of  the  units* 
are  exceedingly  large,  there  are  many  thousands  of 
small  houses  doing  business  partly  or  wholly  by  mail. 


MAIL-ORDER  SELLING  ^61 

This  is  shown  by  a  consideration  of  three  leading 
classifications. 

First,  there  are  manufacturers  who  sell  all  their 
product  by  mail  to  consumers  or  to  dealers.  Most 
of  the  mail-order  advertisements  appearing  in  the  gen- 
eral magazines' are  those  of  manufacturers  deahng 
directly  with  consumers. 

Second,  there  are  the  so-called  mail-order  or  catalog 
houses  who  sell  entirely  by  mail ;  or  partly  by  mail  and 
partly  over  the  counter ;  or  else  by  means  of  agents  or 
canvassers.  Some  of  the  largest  catalog  houses  are 
manufacturers,  but  as  previously  said,  prefer  rather 
to  buy  in  the  competitive  market.  The  character  of 
the  source  of  supply,  however,  is  unimportant. 

The  third  class  of  business  houses  selling  by  mail 
are  the  jobbers.  Some  of  these  are  large  houses,  for 
example,  Butler  Brothers,  in  the  novelty  field,  but  on 
the  whole  the  field  is  small. 

8.  Why  goods  are  sold  by  mail, — Mail-order  busi- 
ness is  selling  thru  advertising.  The  prime  factors 
in  the  development  of  advertising  have  been  cheaper 
transportation,  postage,  magazines,  newspapers  and 
paper.  Without  low  freight  rates  goods  could  not  be 
widely  distributed.  Cheaper  postage  made  it  possi- 
ble to  reach  more  people  and  cut  costs.  Advertising 
helped  to  cheapen  newspapers  and  magazines  and  then 
cheapness  in  turn  cheapened  the  cost  of  advertising 
and  reduced  the  cost  of  selling.  When  paper  costs 
came  down,  the  saving  was  spread  over  every  utility 
service  by  paper.     Forty  years   ago  a  big  catalog 


262  MERCHANDISING 

would  have  cost  several  times  what  it  does  now. 
When  the  cost  of  these  several  means  and  mediums 
came  down  it  was  inevitable  that  competition  would 
sooner  or  later  discover  the  practicabihty  of  advertis- 
ing. This  happened,  and  mail-order  selling  developed 
in  consequence. 

Viewed  from  another  angle,  the  development  may 
be  said  to  be  due  to  competition  itself,  both  in  gen- 
eral and  in  particular  fields.  Thus,  for  manufac- 
turers, the  cost  of  getting  distribution  thru  the  regu- 
lar jobber-retailer  channels  was  constantly  rising. 
Retailers  were  not  ordinarily  cooperating  as  the 
manufacturers  thought  they  should  do  and  many  dis- 
putes arose  between  the  two  classes.  The  heavy  na- 
tional advertising  of  manufacturers  endeavoring  to 
secure  the  distribution  of  goods,  irrespective  of  the 
dealer's  help  and  the  heavy  local  advertising  of  de- 
partment stores,  educated  the  business  mind  of  the 
country  to  the  fact  that  selling  was  a  logical  process 
in  which  personality  helped  but  was  not  indispensable. 
Advertising,  therefore,  was  one  of  the  means  of  cheap- 
ening costs  and  insuring  progress.  Goods  are  sold 
by  mail,  in  short,  because  they  can  be  sold  that  way. 

9.  Is  mail-order  selling  ^'legitimated'? — Some 
twenty  years  ago  mail-order  selling  was  associated  in 
people's  minds  with  "cheapness" — cheap  magazines, 
cheap  advertisements,  and  cheap  goods.  The  peri- 
odicals carrying  these  advertisements  and  the  so-called 
"mail-order  publications"  were  usuall)^  of  low  grade, 
filled  with  all  sorts  of  questionable  offers  of  tricks. 


MAIL-ORDER  SELLING  263 

games,  agents'  outfits  and  other  things  designed  to 
prey  on  the  unsophisticated.  This  condition  has  vir- 
tually vanished  and  today,  as  has  been  pointed  out, 
mail-order  selling  occupies  a  leading  position  in  the 
field  of  retail  merchandising.  Judged  by  this  stan- 
dard, it  is  thoroly  legitimate. 

Is  there  any  other  sense  in  which  the  mail-order 
house  is  not  legitimate?  Is  there  any  economic  justi- 
fication for  the  hostility  of  the  retail  storekeeper? 
What  does  a  business  magazine  mean  when  it  asks  of 
retailers:  "Do  you  think  it  good  business  for  a  manu- 
facturer of  advertised  goods  to  place  his  line  with 
everyone  who  will  carry  it,  or  shall  he  try  to  protect 
the  'legitimate  dealer'?"  Who  is  the  legitimate 
dealer?  Is  he  not  any  merchant  who  sells  honest 
goods  in  an  honest  way?  Some  retail  merchants 
claim  that  the  specialty  store  dealing  "over  the 
counter"  is  the  only  "legitimate"  dealer.  To  them, 
all  other  forms  of  retail  competition — the  department 
store,  the  chain  store  and,  most  of  all,  the  mail-order 
house — are  to  be  classed  as  irregular  and  dubious, 
mushroom  growths  that  have  gained  temporary  favor 
by  the  illegitimate  means  of  quantity  buying,  manipu- 
lation of  prices,  departments  and  exaggerated  and 
untruthful  advertising  and  must  disappear  when 
these  forms  of  unfair  competition,  as  they  term  them, 
are  discovered  in  their  true  light  and  done  away  with 
by  law  and  legislation. 

The  question  is  as  to  whether  these  forms  of  compe- 
tition are  unfair  and  whether  a  service  performed  by 


264  MERCHANDISING 

mail  is  any  the  less  economical  than  when  performed 
by  the  local  retail  store.  If  so,  no  attempt  to  frustrate 
its  development  will  long  succeed. 

10.  Justification  of  selling  by  mail. — Does  mail- 
order selling  really  serve  the  people?  One  answer 
is  that  the  mail-order  houses  continue  to  make  large 
sales  and  hold  a  surprisingly  large  proportion  of  their 
customers.  An  officer  of  the  Charles  WiUiam  Stores, 
says : 

There  must  be  some  good  reason  why  ninety-three  and  one- 
half  per  cent  of  the  people  who  have  bought  goods  from 
us  in  a  given  state  have  ordered  on  an  average  three  and 
one-half  times  in  the  course  of  the  year ;  there  must  be  some 
good,  sound  reasons  for  the  overmastering  success  of  the 
mail-order  business.  There  must  be  something  funda- 
mentally sound  about  a  proposition  that  sells  itself  and  keeps 
itself  sold. 

Oftentimes  mail-order  selling  performs  a  service 
not  performed  by  other  retail  selling  methods.  Fre- 
quently it  gives  better  service  than  retail  stores  in  the 
very  departments  in  which  retail  stores  should  excel. 
In  this  connection  let  us  take  the  single  item  of  sales 
service.  How  many  salesmen  are  as  well  informed 
about  the  goods  they  sell  as  the  silent  informant  in  the 
mail-order  catalog?  Hear  the  confession  of  a  small 
town  dealer,  who  wrote  as  follows  to  a  farm  implement 
manufacturer : 

I  know  now  why  I  have  been  losing  business  to  the  catalog 
houses.  I  thought  I  knew  my  lines,  but  I  don't.  A  farmer 
out  in  the  country  had  been  getting  consignments  pretty 
regularly  at  the  freight  station  from  one  of  the  Chicago 


MAIL-ORDER  SELLING  265 

houses  and  I  wanted  his  business.  This  spring  he  was  in 
the  market  for  a  sulky  plow.  I  determined  to  get  his  order, 
and  went  out  personally  to  his  place  and  invited  him,  as  a 
personal  favor,  to  look  over  my  stock.  He  came  in,  and 
I  showed  him  your  line.  One  plow  interested  him,  and  he 
began  to  ask  questions  about  it.  I  told  him  all  I  could, 
and  all  that  I  had  ever  told  anybody.  But  he  wasn't  satis- 
fied. Before  I  knew  it,  he  was  telling  me  more  about  that 
plow  than  I  knew  myself.  It  was  an  interesting  half-hour 
for  me.  I  asked  him  where  he  had  learned  the  implement 
business.  He  said  he  had  never  learned  it;  he  had  gotten 
everything  he  knew  about  the  true  inwardness  of  a  sulky 
plow  from  the  pages  of  Blank's  mail-order  catalog.  That 
taught  me  a  lesson.  No,  I  didn't  make  the  sale,  but  I'll 
never  lose  another  for  the  same  reason  that  I  lost  that  one. 
If  Blank  can  afford  to  take  the  time  to  tell  his  customers 
all  they  want  to  know  about  the  things  they  purchase,  I 
guess  I  can  afford  to  learn  my  line  well  enough  to  tell  my 
customers  the  same  things.  Send  me  all  the  information 
you  have. 

In  addition,  consider  that  mail-order  houses  guar- 
antee satisfaction — ^will  return  money  if  the  customer 
is  not  satisfied.  The  retailer  many  times  cannot  do 
that. 

11.  Creating  business  by  mail-order, — It  is  some- 
times argued  that  the  mail-order  house  is  only  a  new 
competitor  for  old  business,  that  it  creates  no  new 
business  nor  provides  any  new  service.  Were  this 
true,  it  would  be  no  argument  against  mail-order  sell- 
ing, compared  with  other  forms  of  competitive  mar- 
keting. Competition  is  open  to  all  and  everyone  who 
uses  honest  methods  is  at  liberty  to  get  as  much  of 
the  business  as  he  can  induce  the  public  to  give  him. 

But  is  it  true  that  the  mail-order  house  is  not  con- 


266  MERCHANDISING 

structive?  Decidedly  not.  Thousands  of  things 
which  increase  the  pleasure  of  living  in  country  homes 
are  bought  by  mail  which  would  not  be  bought  other- 
wise. The  spreading  of  information  thru  the  mail- 
order catalog  about  new  kinds  of  merchandise  has,  as 
has  already  been  said,  raised  the  standards  of  living, 
put  new  comforts  into  countless  homes,  and  created 
and  satisfied  many  wants. 

Some  people  concede  that  mail-order  selling  is  con- 
structive, but  they  claim  that  it  leads  to  extravagant 
habits.  That  leads  us  over  into  the  realm  of  the  com- 
petitive system  in  industry,  which  is  a  subject  apart 
from  this  discussion.  It  can  be  said,  however,  if  com- 
petition is  an  evil  in  industry,  it  is  a  fault  of  the  entire 
system.  When  local  dealers  criticize  mail-order  sell- 
ing on  this  basis  they  are  criticizing  it  for  doing  with 
conspicuous  success  the  very  thing  that  most  of  them 
are  doing,  to  wit,  selling  as  many  goods  to  as  many 
people  as  possible  and  making  a  reasonable  profit 
from  their  sales. 

12.  Competitive  strength  of  mail-order  selling, — 
Selling  by  mail  has  many  elements  of  competitive 
strength.  By  familiarizing  himself  with  them  the 
manufacturer  or  dealer  who  decides  to  sell  in  this  way 
will  avoid  pitfalls.  The  local  dealer  who  competes 
with  the  mail-order  house  should  consider  all  the  ad- 
vantages which  mail-order  selling  possesses  in  order 
to  learn  how  to  combat  them. 

13.  Wide  variety  of  selection, — Probably  the  chief 
point  of  strength  of  the  catalog  house  is  found  in  the 


MAIL-ORDER  SELLING  267 

wide  variety  of  stock  which  it  offers.  The  country 
storekeeper  has  such  hmited  capital  that  even  with 
the  best  of  management  he  must  spread  the  capital 
out  very  thin  in  order  to  meet  the  demands  of  the 
trade.  For  example,  he  may  carry  a  few  styles  and 
sizes  of  enamel  kitchen-ware,  but  he  must  also  carry 
dry  goods,  drugs,  groceries  and  a  host  of  other  things, 
so  that  he  has  not  funds  available  to  carry  sufficient 
enamel  ware  to  meet  the  demands  of  his  trade  which 
are  constantly  being  augmented  by  national  advertis- 
ing and  higher  standards  of  living.  What  is  true  of 
the  country  general  store  is  true  to  a  lesser  degree 
of  the  small-town  specialty  store. 

It  is  quite  possible  for  the  local  merchant  to  supple- 
ment his  stock  by  mail  orders,  at  the  customer's  re- 
quest, but  he  can  not  do  this  on  a  footing  of  equality 
with  the  mail-order  house.  A  customer  expects  a 
retail  store  to  carry  an  adequate  stock  and  if  it  does 
not  have  what  he  wants  he  oftentimes  is  unwilling  to 
wait  until  the  dealer  orders  it,  but  mails  the  order 
himself. 

14.  Low  capital  and  overhead. — The  mail-order 
house  does  not  need  to  carry  large  stocks ;  in  fact  many 
of  the  bulkier  articles  listed  in  mail-order  catalogs  are 
not  carried  in  stock  at  all.  Orders  for  them  are  for- 
warded to  the  manufacturer  and  shipment  is  made 
direct  from  the  factory  to  the  consumer.  This  is  an 
advantage  which  the  small  store  lacks  because  it  must 
tie  up  its  capital  in  relatively  large  quantities  of  mer- 
chandise.    When  customers  order  by  mail,  they  ex- 

V— 19 


^68    _  MERCHANDISING 

pect  some  delay.  This  gives  the  house  an  opportunity 
to  obtain  outside  the  articles  ordered  which  it  does 
not  have  in  stock. 

15.  National  in  scope. — The  wide  area  of  opera- 
tions of  the  mail-order  house  frees  it  from  the  influ- 
ence of  purely  local  conditions  of  business  depression. 
Only  widespread  industrial  or  financial  difficulties  can 
seriously  affect  it.  A  prolonged  strike  of  miners  in 
the  anthracite  region  of  Pennsylvania  would  affect 
seriously  every  retail  store  in  the  Scranton  district, 
but  a  mail-order  house  with  headquarters  in  that  city 
operating  thruout  the  East  would  be  affected  in  much 
smaller  measure. 

The  area  for  development  of  the  catalogue  house 
is  almost  unlimited.  Operations  are  limited,  in  the 
United  States  at  least,  only  by  the  extent  and 
efficiency  of  the  postal,  telegraph,  freight  and  express 
systems. 

16.  Selling  power  of  the  catalog. — The  catalog  of 
the  mail-order  dealer  presents  his  entire  line.  The 
catalog,  too,  is  always  accessible  in  the  home  of  the  cus- 
tomer and  it  is  a  much  simpler  matter  to  turn  its  pages 
in  order  to  gain  a  knowledge  of  any  line  of  goods  than 
it  is  to  visit  a  store  for  a  personal  inspection.  The 
mail-order  customer,  therefore,  is  likely  to  order  a 
larger  assortment  of  merchandise  than  the  over-the- 
counter  customer.  Moreover,  the  customer  is  in  the 
buying  mood  when  he  leafs  over  the  catalog.  The 
alluring  picture  which  accompanies  the  description  of 
most  articles  is  therefore  often  more  effective  than 


MAIL-ORDER  SELLING  ^69 

the  sight  of  an  article  in  a  store  where  he  or  she  has 
gone  in  to  get  one  article  only  and  is  thinking  of  some- 
thing else.  The  ease  of  ordering  from  a  catalog  in 
the  quiet  of  the  home  helps  to  obtain  the  trade  of  those 
people  who  are  either  unwilling  or  unable  to  take  the 
time  and  trouble  of  going  shopping. 

17.  Low  prices, — A  common  opinion  is  that  the 
chief  strength  of  the  mail-order  house  in  competition 
is  its  ability  to  quote  low  prices.  Some  mail-order 
houses  offer  many  articles  at  very  attractive  figures, 
but  others  make  no  attempt  to  get  trade  on  a  low  price 
basis.  It  is  worth  while  analyzing  the  advantages 
the  catalog  houses  possess  in  order  to  see  how  far  they 
are  peculiar  to  this  kind  of  retail  selling.  For  ex- 
ample, are  low  prices  always  possible  in  selling  by 
mail  or  are  they  due  to  good  management,  size  or  some 
other  consideration  which  the  catalog  house  shares 
in  common  with  other  retailing  agencies? 

18.  Elements  in  selling  price, — There  are  three  ele- 
ments in  selling-price  cost,  sales  expense  and  profit. 
We  shall  consider  these  elements  in  inverse  order. 
Good  mail-order  houses  operate  on  a  basis  of  low 
profits  and  quick  turnover.  This,  however,  is  a  uni- 
versal principle  if  not  quite  the  common  practice  in 
successful  retail  selling. 

The  mail-order  house,  obviously,  has  certain  sav- 
ings. Its  business  is  on  a  cash  basis,  reducing  book- 
keeping costs  and  eliminating  costs  of  collection  and 
losses  from  bad  debts.  It  has  no  house-to-house  de- 
livery problem,  which  in  some  retail  stores  runs  as 


270  MERCHANDISING 

high  as  three  per  cent  of  total  sales.  There  is  no  ex- 
pense for  window  display,  nor  is  an  expensive  loca- 
tion required.  As  the  employes  do  not  come  in  con- 
tact with  the  public,  it  is  possible  to  use  cheaper  labor 
than  the  retail  stores  can  employ.  Larger  unit  sales 
are  made  than  in  retail  stores  which  means  a  minimum 
of  certain  overhead  charges  on  each  dollar  of  sales. 

As  against  these  savings  the  mail-order  house  has 
a  tremendous  expense  for  advertising.  Expense  of 
operation  for  an  ordinary  country  store  runs  from 
twelve  to  sixteen  per  cent  of  sales.  For  the  large  type 
or  mail-order  house  it  is  probably  from  20  to  22  per 
cent  of  sales.  In  the  smaller  houses,  including  many 
direct  selling  manufacturers,  it  is  quite  certain  that 
the  dealers  and  manufacturers  are  glad  to  buy  a  dol- 
lar's worth  of  business  for  25  cents  or  even  more. 

It  is  evident,  therefore,  that  the  catalog  house  has 
no  advantage  in  selling  expense  over  that  of  its  com- 
petitors. Even  if  the  catalog  house,  with  a  lower  ex- 
pense of  operation,  quotes  lower  prices  than  the  retail 
store,  the  latter  always  includes  in  its  price  the  cost  of 
delivery;  the  customer  of  the  catalog  house,  in  other 
words,  pays  for  his  own  delivery.  For  comparative 
purposes,  therefore,  this  expense  should  be  added  to 
the  other  expenses  of  the  catalogue  house. 

If  mail-order  selling  makes  possible  lower  prices,  it 
must  be  because  of  the  third  element,  cost.  In  the 
case  of  the  manufacturer  who  sells  direct,  it  is  natur- 
ally assumed  that  the  goods  laid  down  in  his  warehouse 
have  cost  him  less  than  they  would  cost  the  dealer  who 


MAIL-ORDER  SELLING  271 

had  to  buy  them  from  him.  This  would  be  true  pro- 
vided the  cost  of  his  goods  to  his  sales  department  was 
the  same  as  the  cost  of  manufacture.  Many  manu- 
facturers, however,  credit  themselves  with  a  profit  both 
on  manufacturing  and  on  selling ;  they  charge  the  sales 
department  with  an  amount  that  represents  both  the 
actual  cost  of  manufacture  and  the  profit  demanded 
from  the  manufacturing  department;  and  the  sales 
department  is  then  expected  to  make  still  another  net 
profit  for  the  manufacturer.  Because  of  this  marked 
difference  in  arriving  at  costs,  the  direct  selling  manu- 
facturer does  not  always  start  with  a  lower  cost  of 
goods  than  the  mail-order  house  that  has  to  buy  what 
it  sells,  altho  probably  in  the  majority  of  cases  he  can 
do  so. 

19.  Influence  of  quantity  upon  price, — The  ability 
to  buy  in  quantities  is  the  most  important  considera- 
tion making  for  low  cost  of  goods  to  the  dealer.  The 
mail-order  house  must  pay  the  same  price  for  its  goods 
as  the  local  retail  store  if  they  both  buy  in  the  same 
quantities.  Many  manufacturers,  however,  are  will- 
ing to  go  over  the  jobber's  head  and  to  make  their  low- 
est prices  to  any  one  who  can  buy  in  sufficient  quanti- 
ties. If  on  account  of  lower  cost  of  goods,  a  large 
mail-order  house  makes  better  prices  than  a  small  re- 
tail store,  it  is  because  one  is  a  large  buyer  and  the 
other  is  a  small  one. 

20.  Trade  favors. — If  the  usual  quantity  discounts 
were  the  only  price  advantage  of  large  establishments, 
which  were  secured  as  a  result  of  buying  in  maximum 


272  MERCHANDISING 

quantities,  the  small  dealer  would  not  be  seriously 
handicapped,  because  in  many  lines  the  scaling  down 
of  prices  for  buying  in  large  quantities  is  slight.  But 
some  manufacturers  in  order  to  obtain  business  from 
a  large  mail-order  house  will  sell  at  a  price  which  re- 
duces their  profits  almost  to  the  vanishing  point;  in- 
deed, manufacturers  without  adequate  cost  systems 
and  blinded  by  the  seeming  advantages  of  a  mail-order 
connection,  have  been  known  to  sell  their  entire  out- 
put to  a  mail-order  house  at  a  loss.  This  of  course 
gives  the  large  mail-order  dealer  a  decided  advantage 
over  the  small  local  dealer  who  cannot  secure  such 
prices. 

To  what  extent  large  selling  units,  including  mail- 
order houses,  are  favored  with  secret  discounts  by  the 
manufacturer  will  of  course  never  be  known.  Since 
the  creation  of  the  Federal  Trade  Commission,  how- 
ever, this  practice  along  with  other  forms  of  trade 
discrimination  has  been  put  under  the  ban  and  penal- 
ties prescribed  for  those  who  grant  them. 

21.  "Loss  leaders." — Prices  are  cut  by  mail-order 
houses  on  many  nationally  advertised  articles  on  which 
quantity  prices  are  not  granted  to  any  extent.  This 
practice,  however,  is  common  to  all  forms  of  retail 
trade.  If  country  dealers  do  not  adopt  this  policy  it 
is  because  they  do  not  care  to  become  embroiled  in  a 
controversy  with  the  manufacturer  over  price  mainte- 
nance. Then,  too,  their  business  is  not  large  enough 
to  permit  them  to  cut  prices  on  some  articles  in  the 
hope  of  making  up  the  loss  on  others.     Some  mer- 


MAIL-ORDER  SELLING  273 

chants,  also,  are  of  the  opinion  that  price  cutting  is 
not  good  merchandising. 

22.  Advantages  of  mail-order  houses  not  inherent, 
— We  have  seen  in  the  preceding  sections  that  the 
strength  of  the  catalog  house  is  due  largely  to  its  size 
and  has  no  necessary  connection  with  selling  by  mail. 
Efficient  management,  low  profits  with  quick  turn- 
over, low  prices  resulting  from  quantity  purchases, 
guaranteed  goods,  the  exchange  privilege,  up-to-date 
advertising — these  are  a  few  of  the  advantages  of  the 
mail-order  house.  Many  retail  stores  secure  these 
same  economies  and  numbers  of  others  could  secure 
most  of  them  if  their  stores  were  managed  as  effi- 
ciently as  mail-order  houses. 

23.  Retailer  and  mail-order  competition. — Like 
every  other  form  of  retail  selling,  the  mail-order  busi- 
ness suffers  from  certain  disadvantages.  For  most 
people,  buying  by  mail  is  tedious,  formal  and  cumber- 
some. The  average  buyer  would  rather  deal  with  a 
live  person  in  his  own  town,  some  friend  or  neighbor 
maybe,  than  with  an  impersonal  and  remote  corpora- 
tion, provided  that  the  local  dealer  can  furnish  the 
service.  The  mail-order  house  ordinarily  gets  busi- 
ness only  when  the  local  store  fails  to  furnish  the  serv- 
ice, or  when  customers  are  unaware  that  it  can  furnish 
it. 

The  mail-order  firm  is  not  driving  the  local  dealer 
out  of  existence.  Both  have  their  respective  places 
and  both  will  doubtless  continue  to  prosper.  But  if 
the  local  dealer  is  to  get  his  share  of  the  business,  he 


274?  MERCHANDISING 

must  give  his  best  thought  and  energy  to  the  task 
of  competing  with  his  rival  on  its  own  basis  of  service. 
It  will  be  futile  for  him  to  try  to  hinder  the  mail-order 
business  by  legislative  enactment.  If  the  mail-order 
house  is  guilty  of  unfair  practices  in  competition,  it 
should  be  punished  just  as  any  other  retailing  agency 
should  be  punished  that  commits  a  similar  offense. 
But  as  long  as  both  play  the  game  honestly,  neither 
can  strike  at  the  business  of  the  other  thru  an  appeal  to 
the  legislature  without  striking  at  the  competitive  sys- 
tem of  industry  to  which  they  both  owe  their  existence. 

24.  Purchaser  picks  out  his  own  goods, — In  its  own 
field  the  local  retail  store  has  certain  points  of  strength, 
just  as  the  chain  store  has.  The  purchaser  has  a  de- 
cided advantage  in  seeing  what  he  is  buying.  If  he 
is  dissatisfied  with  his  purchase,  he  can  often  tho  not 
always  make  quick  and  easy  adjustment  without  being 
put  to  the  trouble  of  reshipping  the  goods,  writing 
letters  and  waiting  several  days  for  settlement. 

25.  Quick  delivery, — One  of  the  most  decided  ad- 
vantages which  the  local  dealer  has  is  quick  delivery. 
The  store  and  the  consumer's  residence  are  compara- 
tively close  together.  Then,  too,  the  mail-order 
buyer,  if  he  wants  to  lighten  transportation  charges, 
must  buy  in  large  quantities.  On  the  other  hand,  the 
customer  of  the  small  store  can  buy  the  smallest 
amounts  as  he  needs  them,  and  as  the  overwhelming" 
number  of  consumers  have  no  capital  to  expend  in 
anticipating  future  needs  they  must  patronize  local 
dealers. 


MAIL-ORDER  SELLING  275 

26.  Merchants'  good-will. — In  a  small  town,  par- 
ticularly, the  merchant  is  on  friendly  terms  with  his 
customers.  He  builds  up  a  valuable  clientele.  The 
establishment  dealing  at  long  range  can  do  the  same, 
but  it  is  an  impersonal  good-will  and  can  never  equal 
in  intensity  that  of  the  local  merchant. 

27.  Personal  service. — As  the  patronage  of  a  retail 
store  is  usually  local  and  limited  in  extent  the  owner 
grows  to  know  the  needs  of  his  customers.  He  can 
adapt  his  stock  to  these  needs,  avoid  slow  sellers,  and 
hold  trade  by  catering  to  individual  and  neighborhood 
peculiarities.  This  is  illustrated  by  the  case  of  a 
men's  furnishings  store  in  a  western  town.  The  pro- 
prietor of  this  store  keeps  a  card  record  of  his  regular 
customers.  When  a  customer  comes  in  to  buy  a  hat 
the  salesman  knows  the  sort  the  customer  is  accus- 
tomed to  buying  and  immediately  offers  it  to  him. 
When  the  proprietor  wants  to  dispose  of  an  odd  lot 
of  shirts,  he  sends  personal  notices  to  his  customers 
who  wear  the  sizes  included  in  the  lot.  No  mere  price 
inducements  offered  by  competitors  of  this  store  could 
alienate  these  customers. 

28.  Appealing  to  community  pride. — The  local  re- 
tail store  is  an  important  element  in  the  business  life 
of  the  community.  Its  owner  usually  lives  in  the 
town.  So  do  its  employes  and  they  form  an  effective 
body  of  personal  advertisers.  In  many  towns,  the 
stores  make  the  towns.  The  local  merchant  can  ap- 
peal to  civic  pride  in  urging  support  of  home  institu- 
tions as  against  out-of-town  competition.     This  spirit 


276  MERCHANDISING 

of  civic  consciousness  in  American  communities  has 
become  a  force  to  be  reckoned  with  and  the  retail  mer- 
chant can  often  enhst  this  spirit  for  his  own  direct 
advantage. 

29.  Competing  in  price  and  service, — Local  retail 
stores  sometimes  compete  with  catalog  houses  on  the 
basis  of  price.  Many  dealers  advertise  to  meet  any 
mail-order  figures  that  are  offered.  When  they  are 
given  an  opportunity  to  figure  on  an  entire  bill  of 
goods  they  are  often  able  to  convince  the  customer  that 
local  prices  are  at  least  as  low  as  catalog  prices.  Even 
when  some  business  is  accepted  on  this  basis  at  a  re- 
duced profit  or  even  a  loss,  it  is  good  advertising  and 
often  results  in  securing  the  future  trade  of  the  cus- 
tomer. 

Competition  in  service,  however,  is  usually  more 
common  and  more  successful  for  the  retail  store  than 
competition  in  price.  Stores  which  provide  at  all 
times  a  well-selected  stock,  employ  salesmen  who  are 
alert  and  anxious  to  serve,  present  a  spick-and-span 
appearance  and  attractive  window  displays  and  do 
effective  advertising,  meet  the  catalog  houses  on  their 
own  ground  and  secure  their  proportional  share  of 
the  business. 

30.  Competing  hy  math — It  has  been  frequently 
suggested  that  the  local  dealer  may  compete  with  the 
catalog  house  by  entering  the  mail-order  business, 
even  in  small  towns.  The  individual  stores  of  the 
Penney  clothing  chain  do  this  successfully,  more  suc- 
cessfully, by  the  way,  than  many  large  department 


MAIL-ORDER  SELLING  277 

stores  in  the  cities,  which  have  often  estabhshed  mail- 
order systems  and  then  later  discontinued  them. 

The  retail  store  that  wants  mail-order  trade  need 
not  go  after  it  by  the  "catalog  route."  It  will  ordi- 
narily do  better  to  subordinate  its  mail-order  activities 
to  its  counter  service.  It  should  welcome  mail  and 
telephone  orders,  provide  prompt  service  for  those  un- 
able to  come  to  the  store,  issue  frequent  small  bulle- 
tins of  "specials"  and  in  every  way  possible  try  to 
extend  its  influence  among  the  people  who  need  the 
same  kind  of  goods  as  its  over-the-counter  customers. 

31.  One  reason  for  failure  to  compete, — Perhaps 
the  chief  cause  of  failure  of  many  retail  stores  to  com- 
pete with  mail-order  houses  is  inability  or  unwilling- 
ness to  advertise  effectively.  This  will  readily  be 
seen  by  comparing  the  newspaper  advertisements  of 
the  usual  small  town  retail  store  with  the  description 
appearing  in  the  mail-order  catalog.  "Most  of  the 
mail-order  descriptions  are  flowery  stuff,"  said  a 
dealer,  "that  would  look  silly  if  used  by  a  local  house." 
A  dealer  with  such  ideas  lets  sentiment  interfere  with 
business.  Catalog  descriptions  are  far  from  being 
"flowery  stuff,"  but  even  if  they  were  they  are  what 
people  want  and  they  sell  the  goods.  The  local 
dealer  who  puts  his  own  preferences,  literary  or  other- 
wise, ahead  of  those  he  is  supposed  to  serve  will  lose 
trade  to  those  who  have  only  one  law,  the  will  of  the 
customer.  The  secret  of  the  mail-order  houses'  suc- 
cess is,  when  all  is  said,  the  old  secret  of  pleasing  the 
public. 


278  MERCHANDISING 


REVIEW 


What  is  the  success  of  mail-order  selling  based  upon? 

Does  the  mail-order  house  have  any  advantage  in  selling  over 
the  local  retailer  which  the  latter  cannot  meet  and  overcome? 

If  you  were  a  retailer  who  felt  the  competition  of  the  mail- 
order house,  what  would  you  do? 

Why  did  the  mail-order  pioneers  seek  the  rural  districts  as 
their  best  field?     What  is  the  tendency  today? 

How  is  it  possible  for  a  catalog  to  be  a  better  salesman  than 
the  man  behind  the  counter? 


CHAPTER  VIII 

TRAINING  THE  SALES  FORCE 

1.  ''The  salesman  is  the  store" — When  it  is  realized 
that  there  are  approximately  fifty  thousand  salespeo- 
ple in  the  department  stores  of  New  York  City  alone, 
the  great  possibilities  that  lie  in  training  this  class  of 
workers  for  more  effective  sales  work  become  ap- 
parent. If  we  add  to  this  figure  the  number  of  sales 
people  employed  in  all  other  retail  organizations  in  the 
United  States,  from  the  general  store  at  the  country 
cross-roads  to  the  chain  organizations  with  their  thou- 
sands of  stores,  we  get  an  idea  as  to  the  immense  num- 
ber of  people  who  are  engaged  in  retail  selling.  It 
is  thru  this  multitude  that  some  $20,000,000,000  of 
goods  are  distributed  to  us.  The  success  of  the  stores, 
the  price  of  the  goods,  the  amount  of  service,  are 
reflex  in  the  last  analysis  of  the  intelligence,  the 
industry,  the  loyalty  of  these  people.  It  is  somewhat 
surprising,  then,  to  reflect  upon  how  few  retailers  have 
made  any  systematic  attempt  to  increase  their  sales 
efficiency. 

There  have  been  noted  exceptions  within  the  past 
decade  or  two  of  retail  merchants  who  have  done  this, 
and  in  every  case  the  results  obtained  have  been  strik- 
ing.    One  of  the  best -known  examples  is  the  United 

279 


280  MERCHANDISING. 

Cigar  Stores  Company.  In  little  more  than  a  decade 
and  a  half  this  business  has  been  extended  so  as  to  in- 
clude every  large  city  in  the  United  States.  For  this 
success,  their  system  of  training  salesmen,  as  much 
as  anything  else,  has  been  responsible.  That  the  same 
methods  are  fundamental  to  all  forms  of  retail  selling 
is  shown  by  the  fact  that  the  United  Cigar  Store  sys- 
tem of  training  retail  salesmen  and  similar  systems  of 
large  department  stores  are  being  used  to  equal  ad- 
vantage by  small  stores. 

2.  Eooplaining  the  store  policy, — In  most  of  these 
organizations,  the  training  of  an  employe  begins  im- 
mediately after  the  details  of  employment  have  been 
arranged.  At  that  time,  the  educational  record  card 
is  made  out.  This  card  contains  such  information  as 
the  name  and  address  of  employe,  his  education, 
previous  store  experience,  the  names  of  the  positions 
he  had  held  and  the  reasons  for  leaving.  Space  is  left 
on  which  to  enter  his  future  record  in  the  educational 
course. 

At  the  outset  of  the  educational  work,  it  is  the  prac- 
tice for  the  educational  director  to  collect  a  number 
of  the  new  salespeople  during  a  dull  period  or  after 
the  close  of  business  and  have  the  general  manager 
give  them  a  talk  on  the  history  and  policy  of  the  store. 
This  is  the  first  step  and  one  of  the  most  essential  in. 
the  training  of  a  sales  force.  The  successful  sales- 
man must  be  a  firm  believer  in  the  store  of  which  he 
is  a  part  and  in  the  merchandise  he  offers  for  sale  as 
well  as  in  that  indefinable  something  called  the  policy 


TRAINING  THE  SALES  FORCE  281 

of  the  company.  The  value  of  such  faith  is  shown  by 
the  statement  that  the  failure  of  one  large  department 
store  not  many  years  ago  was  caused  by  the  sales 
force's  loss  of  faith  in  the  store. 

3.  Teaching  the  store  system, — Having  become 
thoroly  imbued  with  the  spirit  of  the  store,  and  having 
been  impressed  with  the  importance  of  courtesy  in 
the  service  of  customers,  the  new  sales  clerk  is  ready 
to  learn  the  routine  of  the  system.  The  superin- 
tendent of  the  store  now  becomes  the  instructor  of  the 
class.  He  explains  the  mechanical  operations  which 
are  to  be  part  of  the  salespierson's  duties — how  to  make 
out  the  sales  slip  or  "schedule,"  "hold  tickets,"  "work 
tickets,"  "transfers,"  "special  delivery  slips"  and  other 
forms  used  in  retail  selling.  Then  to  make  sure  that 
he  has  been  understood,  the  superintendent  usually 
quizzes  the  class  at  random.  Care  is  exercised  not  to 
cover  too  much  ground  at  one  meeting,  which  might 
confuse  the  salespeople  with  a  mass  of  forms.  In- 
struction, if  possible,  should  be  spread  over  several 
meetings.  In  this  work,  a  stereopticon  has  been  found 
to  be  very  useful  in  instructing  large  groups. 

Other  talks  are  given  on  the  care  of  stock,  the 
technical  nature  of  the  goods  and  various  other  de- 
tails covering  the  salesperson's  duties.  In  the  case 
of  special  employes  engaged  for  a  single  sale  the  en- 
tire course  must  be  condensed  into  one  meeting.  A 
store  manual  is  given  to  each  salesperson  as  part  of  the 
permanent  equipment. 

In  many  stores  where  lower  prices  prevail  in  the 


282  MERCHANDISING 

basement,  simpler  systems  of  training  introduce  the 
clerks  to  this  part  of  the  store.  The  work  is  con- 
densed into  one  or  two  meetings,  at  one  of  which  the 
basement  policy  is  explained.  Tests  are  given  as  in 
other  classes  and  the  salesperson  is  provided  with  a 
special  basement  manual. 

4.  Beginning  actual  selling, — After  the  first  lesson 
in  salesmanship  which  follows  the  discussion  of  store 
system  and  policy,  the  recruit  can  begin  selling.  The 
instruction  will  probably  continue  at  regular  intervals 
for  several  months.  He  is  assigned  to  work  under  the 
direction  of  an  experienced  salesperson.  At  this  time 
a  complete  record  for  the  first  year's  work  will  be 
started.  On  a  printed  form  a  record  of  errors  of  the 
new  employe  will  be  kept  at  a  later  time.  The  rea- 
sons for  each  error  are  taken  up  by  the  superintendent 
with  the  salesman.  In  order  to  keep  errors  at  a  min- 
imum some  stores  give  premiums.  The  Stix,  Baer 
and  Fuller  Company  of  St.  Louis,  for  example,  grants 
a  half -holiday  bi-monthly  to  each  employe  who  keeps 
his  errors  at  or  below  a  certain  number. 

The  work  of  the  new  employe  in  many  cases  is 
watched  by  "shoppers"  from  the  educational  depart- 
ment. They  observe  the  salespeople  at  their  work  in 
order  later  to  offer  suggestions  for  improvement  in 
selling  and  to  compliment  them  also  on  the  good  work 
which  is  being  done.  At  Strawbridge  and  Clothier's, 
in  Philadelphia,  an  attempt  is  made  to  train  the  em- 
ploye in  the  use  of  correct  English  as  well  as  in  house 
policy,  system  and  salesmanship.     Training  in  pen- 


TRAINING  THE  SALES  FORCE 

manship  is  frequently  necessary.  For  regular  em- 
Dloyes  the  course  of  instruction  lasts  ten  weeks  with 
two  meetings  a  week ;  for  basement  employes  and  those 
engaged  in  special  sales,  the  educational  work  is  brief 
in  character. 

5.  Special  and  general  bulletins, — In  some  stores 
special  bulletins  or  "efficiency"  bulletins  as  one  store 
calls  them,  are  issued.  These  are  planned  for  the 
whole  store  force.  In  nature  they  are  sometimes  of 
an  educational  character  and  sometimes  inspirational 
in  tone. 

They  are  sent  to  the  floor  superintendents  or  aisle 
managers  in  each  section  and  by  them  distributed  to 
their  emploj^es.  Each  salesperson  reads  them  and 
signs,  as  evidence  of  having  read  them.  The  bulle- 
tins are  later  discussed  under  the  floor  men's  leader- 
ship. The  purpose  is  to  go  into  greater  detail  in  the 
topics  imder  discussion  and  incidentally  to  make  the 
idea  of  "we  are  partners"  more  than  so  much  verbiage. 
After  the  meeting  the  floor  man  sends  in  a  report  to 
the  educational  office  noting  the  fact  that  the  meeting 
has  been  held  and  the  results  obtained  from  it. 

6.  Studying  merchandise, — The  study  of  the  mer- 
chandise is  part  of  the  buyer's  duties.  But  in  order 
that  the  merchandise  should  be  profitably  sold  it  is 
necessary  that  the  salesperson  selling  it  have  some 
technical  knowledge  of  the  goods.  For  this  reason 
the  buyer  of  a  department  holds  regular  conferences 
with  his  sales  force  and  seeks  to  post  them  on  materials 
and  methods  of  manufacture. 

V  — 20 


284  MERCHANDISING 

A  thoro  knowledge  of  merchandise  is  now  consid- 
ered of  equal  importance  with  that  of  system,  courtesy, 
store  policies  and  other  essentials  to  successful  selling. 

7.  Libraries  and  rest  rooms. — The  most  progressive 
of  our  department  stores  besides  training  their  em- 
ployes in  technical  and  general  educational  subjects 
make  provision  for  their  health  and  recreation. 
Among  the  many  stores  which  have  added  these  fea- 
tures to  their  establishments  are  Marshall  Field  and 
Company.  This  company  gives  over  to  their  em- 
ployes a  large  part  of  one  floor.  Two  reading  rooms, 
music  and  rest  rooms  and  various  other  welfare  fea- 
tures are  made  part  of  the  work  of  this  company  in 
training  its  employes. 

8.  Junior  courses, — In  addition  to  training  the  sell- 
ing force  of  today,  provision  must  be  made  for  train- 
ing the  messengers,  cash  girls,  stock  boys  and  other 
employes  who  will  be  the  salespeople  of  tomorrow. 
Every  large  store  has  numbers  of  these  young  people 
between  the  ages  of  fourteen  and  eighteen.  In  most 
cases  they  have  left  school  as  early  as  the  law  allows, 
after  having  completed  the  work  of  the  grammar 
grades  and  in  a  large  percentage  of  cases  only  the  work 
of  the  sixth  or  seventh  grade. 

For  these  workers  some  kind  of  continuation  work 
must  be  provided.  That  of  the  John  Wanamaker 
Conunercial  Institute  may  be  considered  as  typical. 
Regular  classroom  instruction  under  competent 
teachers  is  given  about  four  hours  a  week  during  store 
time.     The  subjects  chosen  are  those  which  aim  to 


TRAINING  THE  SALES  FORCE  ^85i 

continue  the  previous  education  of  the  worker  from 
the  point  where  it  was  discontinued  and  to  supplement 
it,  thru  the  inclusion  of  a  study  of  materials  and 
methods  of  merchandising,  along  the  lines  which  will 
prove  most  advantageous  to  the  young  employes. 
Health  and  strength  are  also  developed  by  military 
and  gymnastic  drills,  boy  scout  exercises  and  so  on. 

9.  Cooperating  with  public  schools. — In  some  cities 
a  concerted  movement  has  been  started  to  get  the 
public  schools  to  give  elementary  training  for  those  in 
mercantile  life.  In  Winnipeg,  a  group  of  club 
women  investigated  housing  and  other  conditions  sur- 
rounding young  girl  workers  in  department  stores 
of  that  city  and  as  a  result  offered  two  suggestions. 
One  was  directed  toward  better  living  conditions  by 
recommending  the  opening  of  semi-philanthropic 
boarding  houses  for  working  girls  living  away  from 
home;  and  the  other,  the  more  important,  urged  the 
board  of  education  to  revise  the  courses  of  study  in 
the  public  schools  and  to  add  continuation  courses  in 
order  that  girls  entering  store  work  might  have  a  bet- 
ter chance  to  command  a  living  wage.  Continuation 
schools  are  now  compulsory  in  many  states  and  any 
worker  who  leaves  school  at  an  early  age  must  by  law 
continue  his  education  a  stipulated  number  of  hours 
a  week  for  a  certain  period. 

10.  Training  non-selling  employes, — The  educa- 
tional work  of  a  department  store  does  not  stop  with 
the  sales  force  but  continues  upward  thru  the  ranks 
of  buyers,  floor  superintendents  and  aisle  managers. 


286  MERCHANDISING 

In  a  well-organized  store,  men  in  these  occupations 
must  complete  a  system  of  training  similar  in  many 
ways  to  that  required  of  a  new  salesman.  In  many 
stores  the  educational  director  plans  special  courses 
for  these  employes  and  for  any  other  group  in  which 
there  is  any  considerable  number. 

11.  Results  of  educational  work. — That  the  edu- 
cational movement  has  proved  successful  is  shown  by 
the  demand  of  salespeople  of  many  years'  experience 
to  enter  such  courses  as  well  as  by  the  tangible  results 
of  the  courses  themselves.  This  is  the  testimony  of 
one  middle-west  store,  that  of  Rike-Kumler  Company 
of  Dayton,  whose  educational  director  says: 

One  great  step  which  has  been  obtained  is  the  awakened 
attitude  of  employes  toward  education.  At  first  the  older 
employes  asked  to  be  excused,  but  now  they  are  beginning 
to  realize  the  value  of  the  school  work. 

REVIEW 

What  principles  are  used  in  training  the  selling  force?  "Name 
one  firm  which  was  a  leader  in  the  movement. 

What  is  the  first  lesson  given  to  department  store  new  em- 
ployes? How  is  the  spirit  of  the  store  as  well  as  its  system 
taught  ? 

Who  should  educate  the  salesman  in  materials,  manufactur- 
ing, etc.? 

What  subjects,  besides  selling  topics,  are  taught  in  the  com- 
mercial courses  in  department  stores?  What  is  some  of  the 
welfare  work?  Do  the  employes  approve  of  the  educational 
and  welfare  work? 

Discuss  a  typical  course  for  junior  employes. 

How  may  department-store  methods  be  adapted  to  other  retail 
selling  organizations?     Of  what  value  is  a  store  manual? 


CHAPTER  IX 

BUYING 

1.  Necessity  of  good  buying. — Of  all  the  elements 
which  enter  into  retail  merchandising  there  is  none  of 
greater  importance  than  buying.  With  the  ability 
to  buy  well  almost  any  store  is  sure  of  a  moderate  de- 
gree of  success,  at  least ;  without  it  no  store  can  hope 
to  succeed.  If  the  retailer  is  to  serve  his  trade  well, 
if  he  is  to  keep  his  stock  moving,  if  he  is  to  meet  com- 
petition, if  he  is  to  keep  down  expenses,  he  must  be 
a  good  buyer.  Profits  begin  with  successful  buying. 
No  matter  how  tastefully  goods  are  displayed,  how 
well  they  are  advertised  or  how  carefuUy  the  sales 
force  is  built  up,  no  merchant  can  overcome  the  handi- 
cap of  poor  buying. 

2.  Buying  organization, — In  small  stores  and  even 
in  some  which  do  a  yearly  business  in  excess  of  a  hun- 
dred thousand  dollars  the  proprietor  is  the  buyer.  As 
the  store  grows  larger,  the  older  clerks  are  allowed 
to  buy  less  important  lines,  and  buyers  are  engaged 
to  purchase  the  more  important  ones.  In  the  large 
department  stores  of  some  cities  there  may  be  a  hun- 
dred or  more  buyers  in  one  store,  many  of  whom  have 
one  or  more  assistants.  In  the  very  largest  stores 
the  proprietor  finds  it  impossible  even  to  supervise  all 

287 


288  MERCHANDISING 

the  buying,  and  an  officer  known  as  a  merchandise 
manager  is  put  in  charge  of  all  buying  activities. 

Whether  the  buying  is  for  a  country  cross  roads 
store  or  for  a  city  department  store,  it  must  be  done 
according  to  certain  well  established  principles  if  it  is 
to  be  well  done. 

3.  Guides  to  buying, — With  the  selling  field  ana- 
lyzed, competition  estimated  and  a  marketing  policy 
determined,  the  retail  merchant  then  plans  his  stock. 
As  the  season  progresses,  an  examination  of  it  is  made 
to  see  how  it  is  selling.  Salespeople  are  required  to 
hand  in  "want  slips"  showing  requests  for  goods  not 
carried.  "Shoppers"  make  the  rounds  of  other  stores, 
selling  similar  lines  to  keep  in  touch  with  competition 
and  to  gain  new  ideas.  Stock  which  has  proved  to  be 
a  slow  seller  is  noted  as  an  error  of  buying  judgment, 
and  provision  is  made  to  dispose  of  it  quickly.  Com- 
plaints are  checked  up  by  the  buying  organization  to 
prevent  their  repetition,  if  the  fault  was  due  to  poor 
buying.  The  reasons  given  by  customers  to  sales- 
people, explaining  why  certain  goods  inspected  are  not 
purchased,  are  turned  in  daily.  Finally,  buyers 
spend  a  large  part  of  their  time  during  the  day  among 
the  customers  of  the  store. 

When  on  buying  trips  it  is  as  much  a  part  of  the 
work  of  buyers  of  high-class  women's  wear  to  visit 
theatres,  hotels  and  restaurants  to  see  what  well- 
dressed  women  are  wearing  as  it  is  for  them  to  visit 
manufacturers.  Any  expense  incurred  in  this  way 
is  considered  well  spent,  for  the  buyer  must  be  con- 


BUYING  289 

stantly  changing  his  lines  in  order  to  keep  abreast  of 
the  times. 

4.  Lines  to  he  carried, — In  a  general  store  which 
endeavors  to  meet  the  needs  of  the  community  it  is 
necessary  to  have  on  hand  all  the  goods  that  are 
wanted  so  far  as  the  limited  amount  invested  in  stock 
will  permit.  The  problem  for  the  proprietor  of  a  gen- 
eral store  is  to  apportion  the  investment  in  stock  so 
as  to  meet  the  largest  number  of  wants  and  yet  at  the 
same  time  supply  the  sort  of  wants  that  are  profitable. 

There  are  a  number  of  points  to  be  considered  in 
determining  the  variety  of  lines  to  be  offered  and  the 
assortment  of  items  to  be  selected  for  each  line. 
Local  demand  is  perhaps  the  chief  guide  in  determin- 
ing the  selection.  Net  profit  to  be  derived  from  sup- 
plying such  lines  is  another  important  consideration. 
Goods  not  in  demand  should  not  be  stocked  unless  the 
retail  merchant  believes  that  he  can  arouse  a  latent  de- 
mand for  them.  In  selecting  stocks  there  is  also  the 
question  of  future  business  to  be  considered  as  well  as 
the  prospect  for  additional  trade  in  other  lines. 

Minor  considerations  would  iifclude  such  points  as 
to  whether  a  new  line  would  fit  in  with  others  carried. 
Ludicrous  combinations  of  lines  are  often  found. 
For  example,  a  store  in  Baltimore  displays  a  sign 
reading,  "Pianos,  organs  and  iron,  safes."  On  the 
other  hand,  the  dealer  in  sporting  goods  can  well  add 
a  sporting-clothes  department;  the  clothier  can  take 
on  a  line  of  jewelry  for  his  haberdashery  section.  In 
the  same  manner  shoe-repairing  departments  are  often 


290  MERCHANDISING 

added  to  the  shoe  departments  of  a  department  store 
for  the  convenience  of  patrons.  There  are  other  con- 
siderations also;  oriental  rugs  or  novelties  are  some- 
times handled  for  their  advertising  value,  even  tho 
the  community  demand  would  not  warrant  such  addi- 
tions. Frequently  such  goods  can  be  obtained  on 
consignment. 

5.  Estimating  possible  business. — The  first  step  for 
a  retail  dealer  to  take  preparatory  to  buying  is  to  esti- 
mate the  total  amount  of  business  done  in  the  center  in 
which  he  trades.  From  this  figure  it  is  possible  for 
him  to  estimate  the  part  of  this  trade  he  should  have 
and  also  the  sales  he  should  make  in  each  line.  This 
can  be  further  classified  in  price  levels  figured  on  the 
basis  of  average  incomes  of  the  diflPerent  classes  in 
that  buying  center. 

Let  us  consider  a  hypothetical  case  of  a  merchant 
in  a  small  town  who  handles  only  women's  ready-to- 
wear  garments.  He  first  figures  his  total  sales  for 
each  line.  When  he  begins  buying  for  his  spring 
trade,  he  has  an  estimate  of  the  number  of  garments 
in  any  one  line  thalf  he  expects  to  sell  at  each  price 
range.  He  knows  how  many  times  he  can  turn  his 
stock  each  year  and  can  therefore  figure  his  average 
stock  requirements.  In  women's  waists  he  estimates 
that  he  does  a  business  of  $5000  a  year,  turning  his 
stock  over  five  times  during  that  time.  This  means 
that  he  will  need  an  average  stock  with  a  retail  price 
of  $1000.  During  the  spring  season  his  stock  will 
range  in  value  from  about  $500  on  February  1  to 


BUYING  291 

$2000  at  Easter,  and  then  gradually  fall  off  to  a  min- 
imum of  about  $500  at  the  end  of  July. 

To  determine  the  price  and  range  of  styles  for  each 
line  is  a  difficult  matter.  Staples  must  be  carried  in 
a  full  range  of  size,  color  and  price  at  all  seasons  while 
novelties  must  be  obtained  at  intervals  according  to 
the  expected  demand.  The  stock  of  novelties  must 
be  turned  more  frequently  than  staples. 

Competition  frequently  influences  the  investment  to 
be  made  in  certain  lines.  If  a  general  merchant  hav- 
ing the  exclusive  agency  of  a  well-known  clothing  line 
is  thereby  able  to  secure  most  of  the  trade  in  town 
it  would  be  the  best  policy  for  another  retail  dealer  to 
carry  small  stocks  of  clothing  unless  he  can  secure  a 
line  equally  good. 

While  past  records  of  sales,  price  ranges,  sizes  and 
styles  are  of  utmost  importance  in  estimating  possible 
business,  the  retail  dealer  should  not  pin  all  his  faith 
on  them.  He  should  bear  in  mind  at  all  times  the 
community  needs  rather  than  past  records. 

For  a  merchant  just  entering  the  retail  trade  it  is 
best  to  obtain  a  complete  variety  of  lines  rather  than 
a  large  quantity  of  any  one  line.  This  plan  may  be 
more  expensive  because  of  the  small  quantities  pur- 
chased, but  few  sales  are  lost'  by  it  and  it  gives  the 
dealer  an  opportunity  of  finding  the  complete  range 
of  demand.  The  variety  should  be  kept  at  the  point 
which  assures  customers  that  they  will  find  what  they 
want  in  stock.  In  no  other  way  can  good-will  be 
built  up  for  a  new  store. 


292  MERCHANDISING 

6.  Buying  according  to  budget, — The  merchandise 
plan,  or  buying  according  to  a  budget,  is  fundamental 
to  all  types  of  retailing.  One  plan  is  shown  on  the 
following  page.  Such  a  plan  is  flexible  in  its  nature 
and,  as  experience  has  shown,  can  be  used  as  success- 
fully by  the  small  country  store  as  the  city  department 
store.  In  some  country  stores  which  are  stocked  ac- 
cording to  a  budget  the  work  has  been  so  well  done 
that  the  results  obtained  are  within  a  fraction  of  one 
per  cent  of  those  estimated. 

Every  large  store  is  merchandised  according  to 
some  plan,  tho  there  are  various  modifications.  For 
instance,  one  department  store  doing  about  ten  million 
dollars'  worth  of  business  a  year  is  merchandised  on 
anticipated  costs  of  running  each  department,  rather 
than  on  anticipated  sales.  In  large  stores  where  there 
are  many  departments  it  is  necessary  to  carry  out  the 
plan  in  greater  detail  in  order  to  show  such  items  as 
cash  discounts  for  each  department,  departmental  ex- 
penses, mark-down,  losses  and  the  like.  In  single-line 
stores  and  general  stores  which  are  not  departmen- 
tized,  the  plan  is  much  simpler  as  the  figures  are  for 
the  business  as  a  whole  rather  than  by  departments. 

7.  Figuring  the  turnover, — The  term  "turnover" 
is  of  comparatively  recent  origin  and  there  is  still  some 
confusion  as  to  its  exact  meaning.  Some  merchants 
figure  what  they  call  "merchandise  capital"  turnover. 
This  represents,  as  the  name  indicates,  the  number  of 
times  the  capital  used  in  purchasing  goods  is  turned 
over.     It  is  computed  by  dividing  the  average  stock 


1    = 

It 
s  o 


liB^jay^  no 


IiBjan 
a:g«jaAy 


;so3   uo 


;«     nosreeg 


U0SB8g  J9d 

jdAonjnj, 


!»B    3[0OJg 

aSeaaAy 


o«5eoi>oooooociooo»oeoeo«Doooeo 
ocoeceoiocoicioinooooweo-ftfjoooec 
oeo««(Neoo4  t>T-»^KOOio  oco^eoeocoTjt  ooeo 

o"  co"  lO  o' iH  »o  rH  00  co' CO  o  th"  <©  in  rH  ci  «D  rn'cj"  in  eo' 


J  i 

'^loioooinoo'^omeoinoicoic^ioioio 


«g«0«>00«OOOOOc<50COOCOOOCOOCO 

^tDtOOOOOOOOeOOCDOOmCDOOOCO 

^  ;o  o"  d  d  d  in  d  d  m  eo  d  d  d  d  t>  d  d  d  d  co 
^ocDinotoiMin'-'it^coooincDJooOooco 
i^  CO  «0  CO  O  CD  CO  CO  '^,''^_C0  ocot-cooscot'oooo 

<o  CO  ci"-<*ii5'of  in  TiTrH  f-i  co'i-Tdoo         ci     co"d"rH 


7i      c^ 

5    t- 


<sd* 


CO  != 
C5<M  S 


(M 


vjW       v50       n50 


v£C       >.CO>s5COO 


eoeocoinintoininO'neoocoinecincoOeocoeo 
'^cccoca(Nco(N(M'^'MeoineocMooNco"*coeoco 


ooooooooooooooooooooo 
ooooooooooooooooooooo 

ooomooooinicooooot-oooino 
inoot-^ooooo  (Nin  oomowc^oooiin 

t^  d^-^*  CO  oT  •<*  oT  t-' m' in  J>  r^*  (^3' W  rH  rH  lO  i-T  OJ  T-T  of 

1-1  iH»n  T-i 


f-lCJeJNWWNMeOCOeOTHiHeONNNCaCJrHN 


ooooooooooooooooooooo 
oooooooomooooooinooooo 
o  o  o  in  o  o  inint-mioooomt-oinmieo 
ininNco'-^-NTfeo     iHcfr-Too'in         (N     rjrt-TrH" 


ooooooooooooooooooooo 
oooooooooooooomoooooo 
o  in  o  o  o_in  in  in  o_^o  o  m  o  o  t-  o  w  <o  mom 
di>c<3"'*m'"i-rdco"T-r(N(N»-ra>'od    i-Tcm'    mNi-T 


?  g  o 

a  cB 

^  ^  % 

'Ji  s 

2  ^  S3 

S*  g  ft 

2  S  a 

«3  Sh  rt 

:3  a>  S 

O"  > 

V  03  O 

6« 


iJ^a 


a>  0)  5 


^      o 

5^ »-  a 

O  3)  fc, 
to  >   =* 

>-«      «^1 

J  V.  a>      ®  „  fl 

^      >  S, « 


*'        OB  » 


5i2 


."    OS 


."O    -  OO 

a  a  o 
a  g  aj  «  MT«  3  g  S  a!  Si  S  »  Sj.s.w 


•,£3 


«fl^^9Sg-|5|'g§S2'5'Ca 


>.'=;'2-5  o^  o  03^2  ®^  «  Ck?^  o  °  ®  «  S  S 


a    "»^g^HS 

-^  a©  s^  W'O 

=s      C      o  o"S     ^' 

■S     *  >-  c  S'S  o^ 

-<->      tj  !2  o  aj  <_,  s  •~' 

^  3>  S  »-  ^  >>X 

a     gM    ^tS-^^ 
•2     4j  (3  u  a"    N 

a       «  sh  a;  ns 

"S^rs  «  =«  "?  S  aJ 
2ft2^-SS-9 

-S5--=3§;aa 


;|§i 


"  >.  a    --a, 


o 

■y)  '_ 
=3  0,^i 

O 


>■  *»  CO  "O     ■;;  ,ta 


-oS.S'^"-  .5 

_0        i-i;J3^«C^ 

5m-?§«"^ooo„ 

Ot-   PCQ    ^-0>  G3   W) 

,C^I  acM  (U  s  « 


293 


S«>  2.1.2  "       ®  > 

ti  -^  5  »  g  o  tr-=  '^ 
a*®"    cosfic^*^.^ 

N  «>"  t-  ^  "S 
O  "^  "-I  mOO  o) 
iH       efS-      €©-       J^t-  h 


294  MERCHANDISING 

maintained  during  the  season  at  cost  into  the  gross 
sales  at  retail.  This  method  has  been  apphed  by  some 
merchants  to  a  stock  turnover  with  the  result  that 
they  are  operating  their  business  on  a  false  basis. 

To  arrive  at  an  equal  basis  of  comparison  all  figures 
should  be  converted  to  a  retail  basis  and  all  calcula- 
tions based  on  both  stock  and  sales  at  retail.  From 
these  figures  we  get  the  true  turnover,  which  in  contra- 
distinction to  the  so-called  merchandise  capital  turn- 
over, is  called  the  stock  turnover.  It  is  obtained  by 
dividing  the  average  stock  maintained  during  the  sea- 
son or  year  at  retail  prices,  into  the  total  sales  during 
that  period  at  retail  prices. 

Many  large  stores  figure  it  by  dividing  the  average 
stock  at  cost  into  the  total  sales  at  cost,  the  cost  in 
both  cases  including  both  buying  price  and  overhead. 
This  method  is  not  quite  as  good  as  the  one  using  the 
retail  prices  as  a  basis  because  the  retail  figures  show 
more  accurately  the  true  value  of  the  merchandise. 
The  total  volume  of  sales  at  retail  is  a  definite  and 
known  figure,  while  the  actual  cost  of  merchandise 
sold  is  difficult  to  obtain  except  thru  the  maintenance 
of  elaborate  cost  systems.  The  average  stock  at  re- 
tail is  likewise  easy  to  figure  accurately  because  in  all 
up-to-date  stores,  merchandise  is  given  a  retail  price 
as  soon  as  it  is  received.  The  actual  cost  of  each  lot 
is  only  obtained  afterward  by  taking  off  the  mark-up 
and  likewise  the  loss  thru  reductions. 

8.  Proper  use  of  turnover. — "One  of  the  most  in- 
sidious leaks  from  the  *profit  chest'  of  a  retail  store," 


BUYING  m5 

said  a  successful  retailer,  "is  very  often  caused  by  idle- 
ness of  stock,  its  failing  to  turn  as  often  as  it  should 
in  a  given  period.  And  this  is  due  in  a  good  many 
cases  to  the  fact  that  the  merchant  has  no  standard 
turnover  in  each  line  to  go  by."  Many  merchants 
try  to  build  up  volume  of  sales  by  having  such  com- 
plete lines  that  they  turn  their  stocks  only  twice  a  year. 
If  they  studied  the  needs  of  the  community,  ordered 
frequently  and  in  small  quantities,  their  stock  could 
be  kept  active  and  fresh  at  all  times. 

The  retailer  oftentimes  carries  too  many  competing 
lines  under  the  mistaken  notion  that  he  is  obliged  to 
carry  them  in  order  to  hold  his  own  against  competi- 
tors. For  example,  a  toilet  goods  department  of  one 
store  carried  twenty-eight  lines  of  talcum  powder 
while  only  fifteen  of  them  were  selling  in  sufficient 
quantity  to  warrant  their  being  stocked.  Every  one 
who  is  acquainted  with  the  typical  country  store  knows 
that  the  slow-selling  and  dead  stock  is  a  heavy  drag  on 
the  business.  The  stock  which  does  not  move  eats 
up  the  profit  in  other  lines.  The  longer  it  lies  on  the 
shelves  the  more  it  depreciates  in  value,  the  more  in- 
terest and  rent  charges  pile  up  against  it  and  the  more 
it  deprives  the  merchant  of  profits  he  might  be  making 
on  fresher  goods. 

Many  retailers  have  made  a  fetish  of  the  turnover. 
It  is  one  evidence  of  successful  merchandising,  but 
there  are  others  equally  important.  Against  the  de- 
sire of  a  big  turnover  must  be  set  the  necessity  of  main- 
taining sufficient  stock  to  take  care  of  the  needs  of 


296  MERCHANDISING 

customers.  They  attempt  to  make  too  many  turn- 
overs of  stock  to  take  care  of  the  needs  of  customers. 
The  attempt  to  make  too  many  turnovers  of  stock  is 
dangerous.  The  costly  sale  is  the  one  lost  from  being 
"out  of  stock."  No  "want  slip"  ever  devised  has 
recorded  the  number  of  sales  lost  daily  on  this  account, 
nor  what  they  cost  in  loss  of  trade. 

9.  Determining  gross  profit, — The  proprietor  and 
the  buyer  for  each  line  must  plan  the  amount  of  gross 
profit  desired.  The  figure  is  arrived  at  in  any  one 
of  several  ways.  If  the  expense  of  doing  business 
in  a  department  is  25  per  cent  on  each  sale,  it  is  evi- 
dent that  the  gross  profit  on  sales  must  be  30  per  cent. 

However,  there  will  occasionally  be  a  necessity  for 
marking  down  some  goods  in  connection  with  sales. 
Some  goods,  too,  will  be  damaged  and  others  stolen. 
Again,  it  will  be  necessary  to  mark  a  certain  line  below 
the  standard  mark-up  as  "leaders"  or  to  meet  com- 
petitor's sales  prices.  Hence,  the  average  mark-up 
must  be  somewhat  higher  than  the  actual  gross  profit 
desired.  Wliere  style  is  an  element,  reductions  are 
more  frequent  than  in  lines  of  staples.  It  will  be 
readily  seen,  therefore,  that  it  is  impossible  to  set  one 
standard  for  all  lines. 

In  the  merchandise  plan  as  presented  on  page  293 
it  will  be  noticed  that  in  women's  ready-to-wear  gar- 
ments the  plan  calls  for  a  gross  profit  of  20  per  cent. 
In  order  to  average  this  on  all  goods  sold,  as  in  reduc- 
tion sales  where  goods  are  frequently  sold  below  actual 
cost,  it  will  be  necessary  to  aim  at  more  than  20  per 


BUYING  297 

cent  profit.  It  will  be  noted  that,  with  the  exception 
of  the  notion  department,  the  number  of  turnovers 
is  greater  in  this  department  than  in  any  other.  Here 
an  average  gross  profit  of  20  per  cent  is  sufficient, 
whereas  an  average  gross  profit  of  as  high  as  33  per 
cent  is  required  in  a  slow-selling  line  like  patterns. 
In  the  final  analysis,  therefore,  the  customer  pays  on 
the  average  about  the  same  per  cent  above  cost  of  mer- 
chandise in  all  lines.  What  is  lost  to  the  merchant 
in  making  reductions  is  more  than  recovered  thru  fre- 
quency in  turning  the  stock. 

10.  Price  confirms  quality. — Merchandise  of  high 
quality  will  always  bring  its  price  in  spite  of  the  efforts 
of  so-called  shrewd  buyers  to  beat  the  price  down. 
Manufacturers  work  on  a  narrow  margin  of  profit  and 
it  is  certain  that  a  buyer  who  haggles  and  forces  down 
prices  below  a  reasonable  limit  is  sure  to  get  inferior 
merchandise.  Many  merchants  realize  this.  One 
merchandise  manager  of  a  large  department  store  re- 
marked at  a  dry-goods  convention,  "When  my  buyer 
of  women's  ready-to-wear  coats  finds  an  attractive  one 
at,  say,  $18  wholesale,  he  does  not  try  to  beat  the  price 
down  to  $16.50.  Instead,  he  would  frequently  offer 
the  manufacturer  a  dollar  more  to  put  in  a  better  lin- 
ing or  a  more  attractive  collar." 

11.  Attitude  toward  discounts. — There  are  as  a  rule 
two  sources  of  profits  in  retailing — the  primary  profit 
from  buying  and  selling,  which  is  called  the  merchan- 
dise profit,  and  the  secondary  profit  from  cash  dis- 
counts.    Discounts  will  average  in  all  merchandise 


298  MERCHANDISING 

lines  about  two  per  cent  for  payment  within  10  days 
with  net  at  30  days.  Assuming  that  the  account  is 
paid  at  the  beginning  of  the  ten-day  period,  this  would 
give  a  discount  of  two  per  cent  for  the  use  of  funds  for 
30  days  or  24  per  cent  for  the  year.  On  the  basis  that 
the  money  is  worth  six  per  cent  per  annum  there  is  a 
profit  of  18  per  cent  in  taking  the  discount.  There- 
fore, it  is  not  surprising  that  buyers  strive  to  get  as 
big  discounts  as  possible. 

In  some  houses  there  is  a  rule  that  buyers  should 
get  an  average  of  five  per  cent  discount  for  cash. 
They  figure  on  selling  their  merchandise  so  low  as  to 
eliminate  any  net  merchandise  profits,  depending  on 
the  discount  profit  for  all  the  net  profits  of  the  busi- 
ness. In  the  long  run  such  houses  are  simply  buying 
discounts.  Altho  they  are  not  aware  of  it,  they  are 
usually  paying  a  higher  price  for  their  merchandise 
in  order  that  a  discount  may  be  thrown  in.  It  is  good 
business  policy,  once  the  desired  merchandise  has  been 
purchased,  to  secure  as  good  a  cash  discount  as  possi- 
ble, but  this  should  not  be  made  the  sole  aim  in  buying 
merchandise. 

12.  Accrediting  the  discounts, — It  is  often  a  ques- 
tion among  retail  merchants  whether  discount  is  to  be 
considered  a  part  of  the  price  of  the  merchandise  and 
therefore  a  trading  profit,  or  whether  it  is  to  be  taken 
as  a  result  of  financing  the  business  and  therefore  a 
financial  profit.  In  other  words,  does  the  discount  go 
to  the  credit  of  the  merchandise  division  of  the  busi- 
ness, or  is  it  an  office  profit? 


BUYING  299 

Practice  varies  and  there  are  many  arguments  on 
both  sides.  To  the  writer,  it  has  always  seemed  that 
as  cash  discounts  must  be  taken  under  existing  con- 
ditions of  retail  competition,  if  the  retailer  is  to  make 
a  living  profit,  the  buying  cost  of  the  merchandise  is 
the  net  price  after  all  discounts  have  been  taken  off, 
and  for  that  reason  the  cash  discounts  belong  to  the 
merchandise  division.  In  that  case  the  merchandise 
and  discount  profits  should  be  combined  to  show  the 
profit  in  each  line. 

13.  Pricing  goods. — As  is  shown  in  the  merchan- 
dise plan,  a  mark-up  is  set  for  each  line.  This  is  the 
amount  of  gross  profit  which  must  be  maintained 
above  all  losses  and  reductions.  It  serves  only  as  a 
general  guide  in  pricing  each  lot.  Goods  are  bought 
to  be  sold  within  a  definite  price  range.  The  buyer 
is  in  the  market  for  women's  ready-to-wear  suits  to 
be  retailed  at  $25.00  and  he  is  expected  to  make  a  cer- 
tain gross  profit.  Therefore,  he  knows  what  the  limit 
of  cost  must  be  and  buys  accordingly. 

To  get  a  definite  line  on  values  it  is  well  in  some 
instances  to  allow  the  salespeople  to  assist  in  buying. 
When,  for  example,  the  traveling  salesman  of  a  cloak 
and  suit  house  shows  a  line  of  suits  to  the  proprietor 
of  a  retail  store  the  proprietor  may  consult  with  his 
salespeople  and  have  them  suggest  retail  selling  prices 
without  knowing  the  cost  of  the  suits.  It  may  be  that 
the  consensus  of  opinion  on  certain  styles  indicates  that 
they  can  be  profitably  sold  at  $25.00.  It  will  be  ad- 
visable, then,  for  the  proprietor  to  make  the  purchase. 

V  — 21 


300  MERCHANDISING 

Perhaps  at  this  retail  price  they  may  bring  more  than 
the  desired  profit;  if  so,  the  extra  profit  will  help  to 
balance  a  loss  somewhere  else. 

After  all  is  said  and  done  goods  are  worth  only 
what  they  will  bring.  That  is  the  decisive  test. 
Slow  moving  goods  must  be  reduced  in  selling  price 
and  gotten  rid  of,  even  tho  a  loss  must  be  taken.  It 
is  well  to  remember,  too,  that  the  sooner  the  loss  is 
taken  on  such  merchandise  the  less  it  will  be. 

14.  Profits. — What  is  a  fair  profit  for  the  merchant? 
In  the  first  place  let  us  define  the  term.  Profit  is  that 
amount  which  a  merchant  has  left  after  all  expenses 
have  been  paid,  including  such  items  as  interest  on 
capital  invested  and  reasonable  compensation  to  the 
merchant  for  his  services.  Profit  must  include  not 
only  payment  for  ability  but  also  for  initiative  and  for 
risks  which  the  merchant  takes  in  doing  business. 
Profit  to  the  merchant  is  his  gage  of  success. 

The  man  who  has  brought  the  business  into  being, 
who  has  given  much  time  to  the  study  of  business 
conditions  and  upon  whom  at  all  times  rests  the  re- 
sponsibility for  the  success  of  that  business  is  entitled 
to  a  reward  which  is  greater  than  that  going  to  any 
one  in  his  employ. 

15.  Buying  by  montJily  quota, — It  will  be  remem- 
bered that  that  merchandise  plan  shows  how  much 
business  should  be  done  during  a  season.  The  season 
is  spht  up  into  months  so  as  to  form  a  quota  for  each 
month.  It  is  also  necessary  to  leave  stocks  clean  at 
the  end  of  the  season  and  for  this  purpose  a  minimum 


BUYING  301 

is  set.  The  merchant  can  figure  on  what  his  sales  and 
stock  on  hand  should  be  each  week  in  every  line  and 
how  much  it  is  necessary  to  buy  thruout  the  season. 
The  necessary  sum  is  allotted  to  each  department, 
by  months,  and  as  purchase  orders  go  thru,  the  totals 
are  deducted  from  the  allotment.  Some  stores  will 
not  allow  buyers  to  exceed  the  current  allotment  for 
each  department  unless  unusual  conditions  occur.  If 
sales  run  ahead  of  the  quota,  the  amount  of  increase 
is  automatically  added  to  the  current  buying  allot- 
ment; and  conversely,  if  sales  run  behind,  it  is  de- 
ducted. 

This  system  has  been  criticized  as  being  too  mechani- 
cal. Buyers  often  complain  that  their  superiors  will 
not  allow  them  to  buy  the  necessary  merchandise. 
This  is  usually  an  acknowledgment  of  poor  buying 
in  the  past.  Successful  merchants  move  slow-selling 
merchandise  by  freshening  it  up  with  new  goods  and 
are  no  less  anxious  than  the  buyer  to  dispose  of  it. 

16.  Keeping  in  touch  with  the  market, — In  lines 
in  which  styles  play  an  important  part,  the  buyer  for 
even  the  small  store  visits  market  centers  frequently 
in  order  to  keep  posted.  These  visits  sometimes  re- 
sult in  getting  better  prices  and  they  always  prove  of 
value  in  strengthening  the  relationship  between  whole- 
saler and  retailer  and  in  giving  the  latter  a  better 
knowledge  of  merchandise  and  trade  conditions.  The 
buyer  must  use  other  means  of  studying  the  market. 
He  must  make  himself  familiar  with  trade  papers, 
catalogs,  circulars  and  quotation  sheets  of  wholesalers 


302  MERCHANDISING 

and  manufacturers.  He  should  be  acquainted  with 
the  trade  association  in  his  line,  particularly  if  it  offers 
a  buying  service  such  as  is  rendered  by  the  National 
Retail  Hardware  Association. 

17.  Selecting  the  wholesaler, — For  the  retail  mer- 
chant various  questio/is  arise  in  connection  with  the 
selection  of  wholesalers.  For  example,  should  the 
retail  merchant  buy  from  nearby  wholesalers,  or  from 
those  located  in  distant  markets  ?  In  the  case  of  small 
retailers,  the  closer  the  buyer  is  to  the  source  of  supply, 
the  better.  Jobbers  clearly  recognize  that  there  is 
a  distance  beyond  which  they  cannot  render  efficient 
service.  Some  manufacturers,  as  the  Regal  Shoe 
Company,  have  found  it  necessary  to  open  branch 
warehouses  at  various  centers  with  complete  whole- 
saling and  dealer  service  equipment  in  order  that  cus- 
tomers at  a  distance  may  be  served  efficiently. 

18.  Concentration  of  purchases. — Should  the  retail 
dealer  scatter  his  purchases  among  a  large  number 
of  wholesalers,  or  should  he  concentrate  on  a  few? 
There  can  be  no  doubt  of  the  value  of  concentration. 
The  wholesaler  with  whom  the  buyer  does  a  large  part 
of  his  business  is  in  a  much  better  position  to  cooperate 
with  him  than  a  wholesaler  who  secures  only  a  small 
part  of  the  business.  Concentration  is  also  necessary 
to  secure  the  exclusive  agency  for  a  line  of  goods. 

It  has  even  a  greater  value  as  an  insurance  against 
financial  troubles  and  a  guarantee  of  prompt  de- 
liveries. If  an  honest  dealer  finds  himself  in  perilous 
waters,  he  can  almost  always  secure  financial  assist- 


BUYING  303 

ance  if  he  has  been  accustomed  to  dealing  with  a  few 
houses.  If  the  situation  is  reversed  and  the  dealer 
is  found  owing  many  concerns  it  is  almost  impossible 
to  help  him.  When  a  merchant  fails  and  there  are 
found  to  be  a  great  number  of  creditors  to  satisfy, 
that  fact  is  likely  to  be  held  by  the  trade,  if  not  by  the 
courts,  as  prima  facie  evidence  of  fraud. 

There  is  a  middle  course  to  pursue  with  respect 
to  concentration.  Care  must  be  taken  so  as  to  avoid 
too  narrow  a  relationship  between  the  buyer  and  a  few 
salesmen  from  manufacturers  and  wholesalers.  If 
the  buyer  fails  to  "shop  around,"  unless  he  haggles 
occasionally,  he  is  not  likely  to  secure  bedrock  prices. 
In  any  case  he  must  be  alive,  independent  and  know 
what  wholesalers  are  offering;  the  rule  of  caveat 
emptor  has  not  entirely  passed  away  and  it  behooves 
every  buyer  to  know  his  market  in  order  that  he  may 
secure  at  all  times  the  prices  prevailing  in  it. 

19.  Buyer's  attitude  toward  salesmen, — In  any  in- 
terview between  a  buyer  and  a  salesman,  the  advan- 
tage goes  to  the  one  who  dominates.  The  alert  buyer 
is  quick  to  put  his  man  on  the  defensive  and  makes 
him  prove  all  statements  about  his  goods.  A  good 
salesman,  too,  is  quick  to  perceive  a  buyer's  ability 
and  treats  him  accordingly. 

Courtesy  on  the  part  of  the  buyer  is  never  wasted. 
A  salesman  may  have  nothing  of  interest  to  offer 
one  season,  but  the  following  season  he  may  have  a 
splendid  line,  and  will  be  disposed  to  help  the  buyer 
who,  altho  he  may  not  have  bought,  has  nevertheless 


304  MERCHANDISING 

been  friendly.  This  is  especially  true  in  a  seller's 
market  as  during  1918  when  retailers  had  trouble  in 
getting  goods.  Then  it  is  that  the  buyer  who  has 
treated  salesmen  squarely  and  courteously  gets  the 
favors,  while  the  buyer  who  has  always  been  gruff 
and  quick  to  take  unfair  advantages  begs  in  vain  for 
merchandise. 

20.  Selecting  merchandise  for  quality, — That  the 
buyer  should  be  able  to  judge  qualities  goes  without 
saying  and  yet  scientific  tests  have  not  been  resorted 
to  by  most  houses  until  recently.  Large  concerns 
now  often  make  most  elaborate  tests  of  materials  in 
their  own  chemical  laboratories  in  order  to  satisfy 
themselves  or  their  customers.  Some  of  the  large, 
manufacturers  issue  booklets  describing  the  tests  of 
their  product.  Many  products  may  be  sufficiently 
tested  by  simple  experiments,  and  buyers  sometimes 
have  occasion  to  make  them.  Most  lines  now  have 
books  describing  practical  tests.  The  textile  line  has 
a  number  of  such  books. 

21.  Style,  novelty  and  eooclusiveness, — The  class  of 
trade  which  is  being  catered  to  will  determine  the  de- 
gree of  importance  to  be  given  to  such  questions  as 
style.  It  is  always  advisable  to  have  a  few  novelties 
on  hand  to  attract  attention  and  brighten  up  the  store. 
Such  lines  as  oriental  rugs,  diamonds,  furs  and  gowns 
in  retail  stores  located  in  the  smaller  cities  and  towns 
may  often  be  carried  on  consignment.  Fresh,  attrac- 
tive merchandise  offers  a  strong  selling  appeal  and 
adds  greatly  in  advertising  the  store. 


BUYING  305 

Exclusive  merchandise  appeals  to  a  class  small  in 
number,  but  with  great  buying  power.  Only  mer- 
chants in  large  cities  can,  however,  carry  it. 

22.  Stocking  new  lines. — ^When  it  comes  to  a  con- 
sideration of  new  lines  which  would  compete  some- 
what with  those  already  carried,  or  with  specialties 
and  luxuries,  the  buyer  should  ask  himself  such  ques- 
tions as:  Is  there  sufficient  demand  for  the  article? 
Do  I  now  have  in  stock  similar  articles  that  will 
answer  the  purpose,  or  that  are  even  better?  Will 
it  fit  into  my  merchandise  plan?  Are  the  manufac- 
turers to  be  relied  on  for  quality  and  for  deliveries? 
What  quantity  can  I  sell  in  one  month ;  in  six  months  ? 
After  these  questions  have  been  settled  in  the  buyer's 
mind  he  can  then  consider  the  more  concrete  ones 
of  price,  discounts,  margin  of  profit  and  others. 

23.  Buyer  must  act  as  merchant, — From  the  fore- 
going presentation  of  the  buyer's  duties,  it  would  seem 
that  he  had  his  hands  full  in  tending  solely  to  the  work 
of  buying.  But  in  most  retail  stores,  from  the  small- 
est to  the  largest,  the  buyer  has  to  combine  buying 
with  merchandising.  Very  large  stores  expect  their 
buyers  to  spend  their  first  hour  in  the  morning  super- 
vising the  arrangement  of  the  stock  on  the  selling 
floor  and  also  in  the  reserve  stock  rooms.  From  that 
time  until,  say,  eleven  o'clock,  their  time  is  given  to 
buying.  The  remainder  of  the  day  is  spent  on  the 
selling  floor,  assisting  salespeople  and  customers. 
Many  buyers  "keep  a  book,"  as  selling  and  making 
out  sales  shps  is  called.     Xo  buyer  unless  he  gets 


306  MERCHANDISING 

this  personal  contact  can  know  consumers'  wants.  In 
addition,  if  the  buyer  is  to  be  a  thorogoing  merchant, 
he  must  collaborate  with  the  advertising  man  in  plan- 
ning the  advertising  copy  and  cooperate  with  every 
other  department  in  order  that  the  store  may  be  oper- 
ated harmoniously  and  effectively. 

REVIEW 

Must  the  merchant  know  how  to  buy  as  well  as  sell?  What 
is  meant  by  the  saying  that  a  merchant's  profit  or  loss  is  made 
when  he  buys? 

Do  retail  merchants  usually  buy  according  to  a  proved  plan? 
What  is  the  basis  for  a  sound  purchasing  plan  in  a  men's  fur- 
nishings store? 

How  do  you  figure  turnover? 

Distinguish  between  merchandise  discounts  and  finance  dis- 
counts as  applied  to  merchandising. 

What  factors  should  a  buyer  keep  in  mind  before  purchasing? 


CHAPTER  X 

STOCKKEEPING 

1.  Necessity  for  good  stockkeeping. — Great  care 
being  taken  by  retail  merchants  to  obtain  the  right 
kind  of  merchandise,  it  would  be  natural  to  suppose 
that  they  would  exercise  a  similar  caution  in  handling 
and  keeping  track  of  it  after  it  had  been  purchased. 
Yet  it  is  remarkable  how  seldom  this  is  done.  Once 
he  has  received  the  merchandise,  he  is  likely  to  relax 
his  acute  interest  in  it  and  become  engrossed  in  the 
other  phases  of  management.  Handling  and  stor- 
ing of  merchandise  appear  as  merely  mechanical  de- 
tails. He  can  not  see  any  opportunity  there  for 
executive  attention. 

2.  Depreciation  and  its  causes. — The  retail  mer- 
chant obviously  buys  merchandise  in  order  to  sell  it 
again  at  a  profit.  Buying,  no  matter  whether  the  pro- 
prietor does  it  himself  or  leaves  it  to  a  salaried  expert, 
is  an  expense.  One  department  store  adds  seven  per 
cent  for  overhead  in  connection  with  buying,  another 
store  four  per  cent.  The  average  expense  for  this 
item  is  probably  about  five  per  cent.  To  this  add 
freight,  cartage  and  receiving  room  expenses  and  a 
proportionate  share  of  general  overhead,  deduct  any 
cash  discounts,  and  you  have  the  net  delivered  cost 

307 


308  MERCHANDISING 

of  your  merchandise.  Every  dollar's  worth  of  mer- 
chandise brought  to  the  selling  floor  has  thus  added 
nearly  ten  cents  in  transit,  and  the  minute  it  gets 
there  it  begins  to  depreciate.  In  some  lines,  such  as 
millinery,  only  two  weeks  is  allowed  for  selling  the 
goods  at  the  regular  price,  while  in  other  lines  the 
time  allowance  may  be  from  two  to  six  months. 
When  the  time  allowance  expires,  the  goods  are 
marked  down  sharply,  and  at  frequent  intervals  after 
that  until  they  are  sold. 

What  are  the  causes  for  this  depreciation?  Much 
of  it  can  be  traced  directly  to  improper  storing  and 
lack  of  care  in  handling.  Boxes  become  broken  and 
goods  are  soiled,  mussed,  faded,  even  stolen.  The 
losses  then  are  direct.  Ranges  of  sizes,  colors  and 
styles  become  irregular  and  are  not  filled  in;  and 
goods  are  allowed  to  remain  in  the  stock  rooms  which 
should  be  on  show.  Here  the  loss  is  indirect.  Stock 
is  permitted  to  run  out  or  else  salespeople  having  no 
knowledge  of  the  exact  condition  think  it  has  run  out ; 
in  either  case  sales  are  lost.  Meanwhile,  the  over- 
looked goods  may  be  going  out  of  style  or  otherwise 
depreciating. 

Such  a  condition  of  affairs  is  a  handicap  on  both 
selling  and  buying.  It  can  be  remedied  by  the  estab- 
lishment of  a  system  and  by  adequate  supervision 
of  its  working. 

3.  Receiving  the  goods, — It  does  not  matter  where 
the  merchandise  is  received,  whether  at  the  back  door, 
or  at  a  special  entrance  to  the  receiving  room,  the 


STOCKKEEPING  309 

important  thing  is  that  there  should  be  at  all  times 
some  definite  place  where  it  is  received,  and  where 
the  receipt  of  it  is  recorded.  The  receiving  quarters 
need  be  only  just  large  enough  to  hold  the  inflow  of 
goods  for  a  short  time;  they  should  be  dispatched  at 
once  to  the  selling  floor  or  to  the  reserve  stock  room. 
4.  Invoicing  the  goods, — Let  us  consider  again 
the  case  of  the  store  which  adds  7  per  cent  for 
buying  expenses.  The  merchant  buys  a  lot,  say,  of 
ten  dresses.  The  freight  and  cartage  upon  them  is 
$2.00.  The  dresses  cost  him  $10  each  at  wholesale, 
and  he  obtains  a  discount  of  5  per  cent  ten  days, 
net  60  days.  The  discount  is  to  be  taken.  Suppose 
the  merchant  is  to  get  a  mark-up  of  20  per  cent  on 
retail  or  25  per  cent  on  cost.  The  invoice  with  his 
annotations  would  read  as  follows: 

10  dresses  at  $10.00  each $100.00 

5  per  cent  for  cash  in  ten  days 5.00 

Net  to  manufacturer $  95.00 

Freight  and  cartage    2.00 

Total  cost  of  dresses $  97.00 

Direct  buying  expense   and   general  buying   over- 
head at  7% 6.79 

Net  delivered  cost  of  dresses $103.79 

Net  delivered  cost  for  each  dress 10.38 

Mark-up  desired,  20%  of  retail  (25%  on  cost)  .  .  .  2.60 

Retail  price   per  dress    12.98 

The  merchant  or  his  buyer  would  next  look  over 
the  goods,  calling  into  consultation  several  of  his 


310  MERCHANDISING 

salespeople  to  help  him  decide  on  pricing  the  goods 
at  retail.  Some  dresses  might  appear  better  than 
others,  in  fact  all  kinds  of  contingencies  might  affect 
his  decision  in  setting  the  price.  But  under  ordinary 
conditions  the  price  for  each  dress  would  be  $13.00, 
or  in  stores  where  "penny  prices"  prevailed,  $12.98. 

5.  Marking  the  goods, — In  the  receiving  room,  a 
ticket  will  be  made  out  for  each  garment,  showing  the 
lot  number,  the  size,  the  color  and  the  price  at  retail. 
The  cost  price  does  not  show  on  the  ticket,  even  in 
code.  Thereafter,  the  dress  is  a  $13  dress,  not  a  ten 
dollar  one,  and  this  is  important  because  of  the  influ- 
ence created  by  names  and  terms. 

In  some  houses,  after  the  invoice  is  paid  and 
destroyed,  there  is  no  way  of  telling  absolutely  what 
any  individual  article  cost,  tho  the  general  idea  may 
be  gained  from  the  average  mark-up  required  in  a 
department  or  line.  What  concerns  the  retailer  most 
is  what  the  article  will  sell  for.  If  a  department 
buyer  has  not  marked  up  an  article  to  the  usual  limit 
set  for  that  line,  the  receiving  clerk  should  get  the 
authority  of  the  management  before  marking  the 
goods  below  the  figured  per  cent  of  mark-up. 

6.  Appraising  the  goods. — The  value  of  the  goods 
at  inventory  time  may  be  greater  or  less  than  the 
cost,  and  the  only  way  to  find  it  is  to  appraise  the 
merchandise  and  ascertain  what  it  will  bring,  at  what 
price  it  can  be  replaced.  If  the  merchandise  consists 
of  staples  and  the  market  is  rising,  the  merchant  will 
appraise  it  at  its  current  market  value  and  mark  up 


STOCKKEEPING  311 

his  retail  price  correspondingly.  If,  on  the  other 
hand,  it  is  depreciating  for  any  reason,  or  if  the  mar- 
ket is  declining,  he  must  appraise  it  for  what  it  is 
worth  at  the  time  of  inventory.  He  must  also  reduce 
his  retail  price  correspondingly.  If  he  makes  profit 
from  a  rising  market  he  should  take  it  without  any 
qualms  of  conscience  just  as  he  must  take  in  a  philo- 
sophical way  any  losses  that  may  occur  on  account 
of  a  falling  market.  In  the  latter  case  the  sooner 
the  losses  are  taken  the  lighter  they  will  be. 

It  is  not  to  be  recommended  that  the  retailer  become 
a  speculator  as  are  so  many  jobbers.  The  retailer 
is  in  business  to  distribute  goods  at  a  fair  profit.  If 
he  feels  assured  of  a  rising  market  he  uses  good  busi- 
ness judgment  when  he  buys  at  a  low  price  staples 
to  last  him  for  several  months.  His  primary  purpose, 
however,  in  buying  is  immediate  resale,  not  specula- 
tion. If  a  retailer  in  food  products  buys  more  than 
he  can  sell  and  stores  them  in  order  to  speculate  on 
the  produce  exchange  he  is  certainly  in  that  respect 
not  performing  the  duties  of  a  retailer. 

7.  Keeping  reserve  stocks  low. — There  is  no  funda- 
mental reason  for  keeping  large  reserve  stocks.  The 
buyer  should  be  able  to  distribute  his  deliveries  in 
such  a  way,  and  to  obtain  so  much  merchandise  on 
reorders,  that  whatever  stock  is  required  to  run  the 
business  can  be  kept  on  the  selling  floor.  If  mer- 
chandise is  held  in  reserve,  it  is  dead  stock  and  a  drag 
on  the  business.  Realizing  this,  shrewd  merchants 
have  cut  down  the  space  allowed  for  reserve  stocks. 


312  MERCHANDISING 

A  New  York  department  store,  for  example,  with 
five  selling  floors  used  it  to  devote  a  whole  floor  to 
reserve  stock.  At  length  it  decided  that  keeping  so 
much  reserve  encouraged  overbuying  and  hence  made 
slow  turnovers.  At  the  beginning  of  the  next  season, 
it  cut  down  the  space  for  reserve  stock  to  a  quarter 
of  the  former  space,  and  set  a  maximum  and  a  mini- 
mum reserve  for  each  line  of  novelties  and  each  of 
staple  goods.  The  buyers  were  instructed  to  control 
their  stocks  and  purchasing  accordingly.  Since  this 
plan  not  only  cut  down  the  "dead"  stock,  but  increased 
the  selling  space  by  three-quarters  of  a  floor,  it  pro- 
duced a  material  increase  in  sales  and  greater  turn- 
over with  greater  net  profits. 

There  are  many  influences  which  affect  the  deci- 
sions as  to  the  minimum  and  maximum  stock  to  be 
carried  in  each  line,  the  amount  to  be  kept  on  the 
selling  floor  and  the  amount  to  be  held  in  reserve. 
Among  the  number  are :  the  value  of  floor  space,  the 
amount  of  floor  space  required,  the  question  as  to 
whether  goods  are  sold  virtually  by  sample,  or  whether 
many  different  sizes  and  colors  have  to  be  employed, 
the  question  whether  parcels  are  delivered  or  are  car- 
ried home  by  the  customer. 

In  any  event  reserve  stocks  should  be  kept  at  the 
smallest  point  compatible  with  good  merchandising 
service.  Let  the  merchant  pass  the  responsibility  for 
carrying  surplus  stocks  back  to  the  jobber  and  manu- 
facturer, and  let  them  in  turn  transfer  it  to  those  who 
collect  the  raw  material.     Ekch,  in  turn,  will  in  this 


STOCKKEEPING  313 

way  reduce  his  loss  from  slow-moving  stocks,  and 
hence  reduce  the  cost  of  retailing,  which  ultimately 
the  public  pays. 

8.  Arrangement  of  reserve  stocks, — Reserve  stocks 
should  be  grouped  according  to  the  general  plan  of 
arrangement  made  for  the  active  stock  on  the  selling 
floors.  In  a  department  store  the  reserve  stock  of 
each  department  is  kept  separate,  generally  in  a  cage 
under  lock  and  key.  In  each  department  the  "head 
of  stock"  who  is  generally  also  an  assistant  buyer, 
is  in  charge  of  the  stock  of  the  department.  There 
may  be  a  stock  clerk,  also,  but  generally  the  work 
is  done  by  regular  clerks  of  the  department  during 
early  morning  hours.  When  goods  are  transferred 
from  reserve  to  active  stock,  a  requisition  is  given  the 
person  in  charge  of  all  reserve  stocks  and  he  deducts 
from  his  reserve  stock  inventories  the  amount  that  has 
been  removed. 

Reserve  stock  is  grouped  by  lines  rather  than  ac- 
cording to  origin,  i.  e.  thru  manufacturers,  largely 
for  psychological  reasons.  If  the  goods  of  each 
maker  were  placed  in  groups  by  themselves,  the  buyer 
would  be  tempted  to  favor  the  big  groups.  Since 
the  brands  are  grouped  irrespective  of  makers,  the 
buyer's  judgment  is  not  swayed  by  this  consideration 
and  he  is  in  consequence  more  likely  to  get  a  repre- 
sentative assortment  of  the  most  desirable  and  best 
selling  goods.  The  retailer  who  neglects  this  pre- 
caution and  buys  entire  lines  for  a  few  manufac- 
turers gets  many  slow-moving  articles  along  with  the 


314  MERCHANDISING' 

popular  ones  and  also  may  stock  too  many  competing 
lines. 

9.  Active  or  ''forward''  stock. — After  modern  fix- 
tures for  each  class  of  stock  have  been  provided, 
according  to  the  amount  it  has  been  decided  to  keep 
on  the  selling  floors,  it  is  a  simple  matter  to  care  for  it. 
The  makers  of  modern  store  equipment  have  reduced 
the  work  of  stockkeeping  fully  100  per  cent.  Never- 
theless, constant  vigilance  is  still  required  to  keep  it 
in  good  condition.  The  greater  part  of  the  work 
of  arrangement  is  done  before  the  store  opens  and 
during  the  early  hours  of  the  day  when  shopping  is 
light.  During  the  day  the  clerks  spend  their  spare 
time  after  each  sale  in  straightening  out  stocks. 

In  jewelry  stores,  where  small  articles  may  carry 
great  value,  each  article  or  tray  of  articles  is  returned 
to  the  show  case  before  another  is  brought  out.  In 
gown  stocks,  sometimes,  where  business  is  brisk, 
girls  follow  the  sales  clerks  to  put  back  each  garment 
as  soon  as  the  customer  has  finished  with  it.  In  every 
store,  the  article  must  be  in  selling  condition  before 
it  is  returned  to  stock.  Any  damages  must  be  re- 
paired and  any  defects  in  equipment — breakages  in 
stock  boxes,  for  example — given  immediate  attention. 

10.  Importance  of  keeping  track  of  stock, — In 
addition  to  performing  the  mechanical  work  of  stock- 
keeping  accurately  and  properly,  it  is  important  that 
proper  records  be  kept  of  number  of  items,  sizes, 
styles,  colors,  grades  and  so  on  for  each  line  of  goods. 
This  is  the  only  basis  upon  which  reorders  are  given. 


STOCKKEEPING  315 

The  information  may  be  secured  by  the  use  of  one 
of  two  methods,  or  a  combination  of  both.  The  older 
method — that  of  the  physical  inventory — was,  until 
recently,  considered  the  only  satisfactory  one.  It 
consists  of  taking  an  inventory  at  regular  intervals, 
usually  yearly,  of  the  goods  on  hand,  noting  the  value 
of  each  article,  the  total  amount  in  each  line  and  the 
grand  total  of  the  entire  stock  of  merchandise.  The 
goods  should  be  appraised  at  either  the  amount  they 
will  bring,  or  the  amount  at  which  they  can  be  re- 
placed. If  the  stocks  are  carried  at  retail,  the  mark- 
up should  be  deducted  from  the  appraised  retail  value. 
The  result  is  the  appraised  cost  value. 

The  newer  method  is  the  perpetual  or  book  inven- 
tory. When  this  is  used,  a  record  of  purchases  and 
sales  is  kept  in  order  that  the  difference  may  be  com- 
puted to  show  the  amount  on  hand  at  any  given  time. 
It  has  been  found  to  be  on  the  whole  more  accurate 
than  the  physical  inventory,  tho  theoretically,  there 
would  seem  to  be  no  reason  why  it  should  not  be  used 
as  effectively  in  the  case  of  merchandise  as  in  the  case 
of  funds.  Many  firms,  too,  have  found  the  practice 
as  satisfactory  as  the  theory.  The  Great  Atlantic 
and  Pacific  Tea  Company  requires  each  store  mana- 
ger to  account  for  each  penny  of  sales.  For  example, 
if  an  egg  is  broken,  the  shell  must  be  kept  as  a 
"voucher." 

When  the  perpetual  inventory  is  used,  the  physical 
inventory — whether  taken  weekly  as  in  some  grocery 
chains,  monthly  as  in  a  cigar  chain  or  semi-annually 

V  — 22 


316  MERCHANDISING 

as  in  the  average  department  store  or  general  store 
— is  used  as  a  check  against  it.  In  the  following 
statement  Mr.  Frederick  A.  Ayres,  president  of  the 
department  store  of  that  name  in  Indianapolis,  illus- 
trates the  reliance  now  placed  on  cumulative  inven- 
tories : 

Until  about  six  or  seven  years  ago,  we  made  a  semi-annual 
physical  inventory  of  our  stocks,  at  cost,  having  no  method 
of  checking  these  inventories  other  than  trying  to  assure 
ourselves  that  the  inventory  itself  was  made  with  proper 
care  and  thoroness. 

The  various  percentages  of  mark-ups,  gross  profits,  mark- 
down,  etc.,  thruout  the  year  were  only  approximately  ar- 
rived at  by  the  experience  gained  in  the  past  years.  Un- 
der the  system  of  carrying  all  our  figures  at  retail,  and  of 
depending  on  a  cumulative  book  inventory,  these  percent- 
ages are  now  known  absolutely  and  correctly  at  the  end  of 
each  month. 

The  most  astonishing  fact,  however,  that  was  disclosed 
by  the  cumulative  book  system,  was  that  errors  crept  into 
the  taking  of  a  physical  inventory,  even  under  the  most 
careful  scrutiny.  We  found  that  where  it  was  necessary 
to  take  a  stock  over  again,  the  difference  in  the  two  physical 
inventories  taken  within  a  very  short  time  was  often  very 
large,  showing  that  under  the  old  system  of  taking  physical 
inventories  at  cost,  it  was  impossible  to  be  certain  that  the 
final  figures  were  correct. 

The  advantage  of  being  so  certain  of  the  monthly  stock 
on  hand  was  proved  to  us  two  years  ago.  A  fire  in  the 
building  adjoining  our  main  store  destroyed  part  of  our 
stock  in  the  upper  floors  of  that  building  and  caused  a  con- 
siderable smoke  damage  to  the  stock  in  our  main  building. 
The  fire  occurred  on  the  second  day  of  January,  or  just 
after  we  had  completed  taking  our  semi-physical  inventory. 

In  this  case,  all  that  would  have  been  necessary  would 
have  been  to  wait  until  these  inventories  were  extended  and 


STOCKKEEPING  S17 

recapitulated.  As  this,  however,  would  have  taken  a  period 
of  two  weeks  or  more,  during  which  time  we  would  have 
been  obliged  to  keep  our  store  closed,  the  insurance  com- 
panies immediately  agreed  to  settle  on  a  basis  of  the  stocks 
as  shown  by  our  cumulative  book  inventory  without  waiting 
to  figure  up  the  physical  inventory,  so  that  the  actual  loss 
of  time  was  cut  down  to  three  days. 

The  discrepancy  between  the  stocks  called  for  by  our 
books  under  the  cumulative  system  of  inventorying  and  that 
called  for  by  the  physical  inventory  averages  about  one 
per  cent  every  six  months. 

Instead  of  invoicing  our  entire  establishment  on  the  first 
days  of  January  and  July,  as  we  formerly  did,  we  now 
invoice  our  stocks  at  such  times  in  the  year  as  are  best 
suited  for  the  individual  departments.  This  procedure  has 
done  away  with  the  confusion  of  invoicing  our  entire  estab- 
lishment semiannually,  during  which  time  the  departments 
are  bound  to  lose  their  efficiency  more  or  less,  but  instead 
allows  the  different  departments  to  invoice  at  any  time  when 
business  in  the  department  is  the  slowest.  We  could  not 
be  persuaded  on  any  account  to  give  up  the  system  of 
cumulative  or  book  inventorying  on  the  retail  basis. 

11.  Methods  of  preparing  for  inventory, — There 
are  two  general  policies  in  regard  to  preparing  for 
an  inventory.  One  is  to  take  stock  first  and  then  have 
special  sales  afterwards.  The  other  is  to  clean  out 
the  stock  first  by  means  of  sales  and  then  take  the 
inventory.  Most  merchants  favor  the  latter  method 
because  it  reduces  stocks  to  a  minimum  and  lightens 
the  labor  of  inventorying.  For  the  same  reason,  mer- 
chants buy  lightly  in  anticipation,  tho  at  the  same 
time  care  is  taken  to  meet  the  immediate  demand  in 
all  lines. 

12.  Preliminary  work, — A  few  days  before  the  in- 


318  MERCHANDISING 

ventory  is  to  be  taken  in  a  large  store  the  clerks  and 
salespeople  are  given  instructions  to  straighten  up 
their  stock.  They  are  required  to  examine  carefully, 
sort,  and  count  the  contents  of  each  case,  drawer,  bin 
or  container  in  which  the  goods  have  been  stored. 
The  results  of  the  examination  are  written  on  what 
is  known  as  a  "first  count"  slip.  This  is  placed  in 
the  container  with  the  counted  goods.  In  many  stores 
the  number  of  the  container  is  also  noted  on  the 
slip. 

It  is  customary  to  use  record  slips  on  which  space  is 
provided  for  filling  in  the  name,  quantity,  style  num- 
ber, selling  price,  cost  number  and  whatever  other  de- 
tails may  be  necessary.  The  slips  are  usually  num- 
bered consecutively  so  that  they  may  easily  be  ac- 
counted for.  They  also  bear  the  distinguishing  mark 
of  the  department  to  which  they  belong. 

13.  Inspecting  stoch. — During  the  taking  of  stock 
all  goods  are  physically  examined  to  learn  their  con- 
dition, and  whether  they  have  depreciated  in  quality 
or  style.  In  the  best  stores  all  stock  is  tagged. 
When  every  article  bears  a  plain  mark,  confusion  is 
avoided.  Moreover,  the  marking  means  time  saved 
during  inspection  and  when  the  goods  are  being  sold. 

14.  Changes  after  first  count, — When  new  goods 
are  received  during  the  inventory  and  after  the  pre- 
liminary counting,  measuring  and  all  similar  oper- 
ations have  taken  place,  or  some  of  the  items  counted 
have  been  sold,  the  "first-count"  slip  in  each  case  is 
changed  to  correspond  with  the  facts. 


STOCKKEEPING  319 

15.  Taking  stock  while  business  goes  on. — The  old 
method  of  requiring  salespeople  and  those  who  have 
charge  of  the  stock  to  stay  after  hours  straightening 
out  inventories  and  listing  goods  on  the  shelves  is  a 
thing  of  the  past.  The  modern  method  permits  stock- 
taking during  business  hours,  while  the  department  is 
selling.  In  stores  which  keep  cumulative  book  inven- 
tories a  staff  of  people  taking  physical  inventories 
can  work  continuously  from  one  department  to  an- 
other at  any  and  all  times  of  the  year. 

16.  Arrangement  of  inventory  hooks. — In  taking 
an  inventory,  books  are  usually  provided  with  a  suffi- 
cient number  of  columns  to  accommodate  the  various 
headlines  under  which  the  stock  is  to  be  entered,  as 
lot  number,  kind  of  merchandise,  sizes,  types,  and 
any  other  heading  that  may  be  found  necessary  for 
purposes  of  record. 

Loose-leaf  sheets  are  ordinarily  used  for  the  work. 
In  stores  where  a  number  of  people  are  engaged  in 
making  the  inventory,  it  is  considered  desirable  to  use 
a  number  of  small  books  in  order  that  entries  may  be 
made  simultaneously,  and  not  only  in  connection  with 
the  preliminary  work  of  entering  on  the  sheet  the 
amounts  called  off,  but  also  in  connection  with  the 
later  work  of  calculation. 

17.  Subdividing  the  inventory. — It  is  desirable  to 
separate  the  inventory  of  each  department  into  as 
many  parts  as  possible,  up  to  the  point  where  further 
division  w^ould  mean  confusion.  This  subdivision 
makes  it  easy  to  locate  errors.     Whichever  system  is 


320  MERCHANDISING 

employed,  each  page  or  sheet  of  the  inventory  is  footed 
up  separately;  but  totals  or  total  sheets  are  not  car- 
ried forward  as  in  the  ordinary  way.  This  plan  of 
keeping  separate  totals  makes  it  easier  to  locate  errors 
and  check  up  any  part  of  the  work. 

REVIEW 

Why  do  merchants  frequently  give  less  attention  to  the  care  of 
their  merchandise  than  of  their  cash? 

Describe  the  processes  which  should  be  followed  when  mer- 
chandise is  received  by  the  store  and  marked  up  for  selling. 

Are  reserve  stocks  desirable,  and  under  what  conditions  are 
they  necessary? 

Explain  the  difference  between  a  periodical  and  perpetual 
inventory?     How  do  they  supplement  each  other? 

Describe  the  method  of  operating  the  perpetual  inventory  and 
the  physical  inventory. 


CHAPTER  XI 

COOPERATION  FOR  SERVICE 

1.  Problems  of  changing  conditions, — Obviously 
the  fermentation  going  on  in  the  field  of  distribution 
could  not  fail  to  bring  to  the  surface  many  new  and 
weighty  problems.  If  these  are  especially  acute  for 
the  wholesale  merchants  as  a  class,  on  account  of  the 
greater  size  of  their  individual  risks,  they  are  not 
less  so  for  many  retail  merchants.  Competition,  for 
one  thing,  has  become  keener.  Then,  too,  the  public's 
wants  which  were  fairly  constant  in  the  old  days,  now 
under  the  push  and  pull  of  up-to-date  sales  promotion, 
shift  this  way  and  that  and  are  difficult  to  follow. 
All  phases  of  merchandising,  in  short,  have  been  enor- 
mously complicated  and  quickened,  and  the  merchant 
who  would  be  sure  of  survival,  to  say  nothing  of 
achieving  success,  finds  himself  obliged  to  keep  track 
of  many  different  tendencies  and  to  make  frequent 
adjustments  to  them. 

2.  Working  toward  a  conclusion, — On  the  whole 
changes  are,  no  doubt,  in  the  right  direction.  It  is 
one  of  the  signs  of  happy  augury  that  the  business 
world  is  facing  its  problems  in  a  new  spirit.  A  new 
idea  has  dawned:  we  are  realizing  that  individual 
experience  is  a  valuable  thing  to  the  whole — in  truth 

321 


322  MERCHANDISING 

so  very  valuable,  that  every  one  who  takes  part  in  the 
exchange  of  it  gains  ten,  a  hundred  or  a  thousand 
fold  what  he  gives.  Our  problems,  difficulties,  wastes 
and  frictions,  whether  well  meaning  or  perverse  are 
now  chiefly  ascribed,  as  they  ought  always  have  been, 
to  sheer  ignorance.  "Get  the  facts  and  spread  them" 
is  the  new-  business  slogan.  With  this  greater  light, 
manufacturers,  jobbers,  retailers,  their  trade  associ- 
ations, the  Chamber  of  Commerce  of  the  United 
States,  the  Federal  Trade  Commission  and  the  De- 
partment of  Commerce — all  are  lending  their  efforts 
in  one  way  or  another  towards  the  increase  of  our 
knowledge  of  the  vital  facts  of  business  and  the  more 
general  diffusion  of  such  knowledge. 

3.  Increasing  organization, — The  more  important 
trade  tendencies  have  previously  been  noted.  It  is 
too  early  to  predict  with  any  certainty  what  their 
issue,  either  immediate  or  remote,  will  be.  In  the 
long  rim,  one  of  two  broad  tendencies — dismissing 
the  remote  contingency  of  nationalization — ^must  no 
doubt  prevail.  One  is  towards  a  system  of  a  few 
big  units  engaged  in  either  manufacture  or  distri- 
bution, or  both,  with  no  place  for  individual  manu- 
facturers, jobbers  or  retailers.  The  tendency  in  that 
direction  is  for  the  moment  strong.  How  long  it  will 
continue  is  a  question.  The  other  tendency  is  towards 
a  system  consisting,  much  as  at  the  present  time,  of 
a  multitude  of  small  concerns  of  all  classes,  but  closely 
linked,  as  they  are  not  now,  by  many  bonds  of  interest 
which  they  are  only  just  coming  to  recognize. 


COOPERATION  FOR  SERVICE  323 

This  recognition  is  really  the  significant  feature 
of  the  situation.  In  view  of  it,  there  is  small  reason 
to  conclude  that  the  existing  system  is  seriously 
threatened  or  that  its  evolution  toward  more  whole- 
some conditions  will  be  checked  by  the  counter  tend- 
encies of  monopoly.  On  the  contrary,  it  is  monopoly 
that  has  most  reason  to  look  to  its  own  protection. 
Despite  the  many  and  great  advantages  it  has  en- 
joyed in  the  past,  big  business  in  most  lines,  has  been 
unable  to  shake  off  the  competition  of  the  small  houses. 
Its  advantages  steadily  grow  less.  These  advantages 
have  been  discussed  in  a  previous  chapter,  and  we 
need  only  refer  here  to  the  gains  of  the  small  inde- 
pendents. They  are  getting  their  information  and 
ideas  cheaper  now  than  ever  before.  What  the  larg- 
est concerns  have  been  hiring  $50,000  and  $100,000 
men  to  do  for  them  is  being  spread  broadcast  for  the 
cost  of  a  subscription  to  a  business  course,  a  business 
paper,  a  trade  journal  and  the  like.  This  is  as  true 
of  financing  as  of  accounting,  production  and  selling. 
No  doubt  organization  will  go  on  increasingly.  The 
only  question  is  which  form  it  will  take,  whether  by 
centralized  authority  or  by  voluntary  cooperation. 

4.  Phases  of  cooperation, — Altho  the  help  given  by 
the  Department  of  Commerce,  the  Federal  Trade 
Commission,  the  trade  and  business  papers,  the  uni- 
versities and  other  educational  institutions  is  not  re- 
garded as  cooperation,  in  the  restricted  sense  in  which 
the  word  is  commonly  used,  nevertheless,  its  effects 
come  to  the  same  thing.     The  help  is  not  of  course 


SM  MERCHANDISING 

given  to  the  small  as  against  the  large  merchant;  it 
is  for  all.  The  fact  is,  however,  that  the  large  mer- 
chant was  already  securing  the  like  information  and 
the  small  merchant  was  obliged  to  go  without  it  or 
obtained  it  only  long  after  it  had  done  duty  for  his 
powerful  competitor.  But  these  agencies  of  govern- 
ment and  education,  by  gathering  and  spreading  the 
vital  data  of  current  business  now  lift  the  small  man 
to  a  parity  of  opportunity  with  the  large  man,  in 
some  important  respects  at  least,  and  furthermore 
encourage  and  stimulate  him  to  find  other  ways  to 
overcome  the  remaining  handicaps. 

The  part  played  by  the  trade  and  business  press 
and  by  business  literature  in  general  in  this  move- 
ment is  easily  understood.  The  Federal  Trade  Com- 
mission, in  addition  to  restraining  unfair  business 
practices  and  to  that  extent  protecting  the  honest 
independent  merchant,  has  performed  a  large  share 
of  the  work  of  awakening  the  business  world  to  the 
importance  of  cost  accounting.  Harvard  Univer- 
sity, thru  its  Graduate  School  of  Business  Admini- 
stration, has  prepared  elaborate  uniform  cost  account- 
ing forms  for  retail  dealers  in  five  Jines  of  business, 
having  previously  found  it  impossible  in  any  other 
way  to  get  reliable  data  for  its  comparative  study  of 
retail  costs  in  which  it  is  engaged. 

Similarly  important  work  for  retailers  has  been 
done  by  the  manufacturers  and  the  jobbers  to  whom 
naturally  it  is  a  matter  of  the  greatest  consequence 
that  their  customers  shall  be  prosperous  and  enter- 


COOPERATION  FOR  SERVICE  325 

prising.  The  work  has  taken  the  form  of  instruction 
in  cost  finding,  pricing,  stock-keeping,  buying,  adver- 
tising and  salesmanship.  The  Associated  Advertis- 
ing Clubs  of  the  World  have  organized  the  instruction 
in  cost  finding  pi^nciples  on  a  broad  scale  and  are 
promoting  the  use  of  uniform  accounting  methods. 

In  addition  to  this  cooperation  from  outside  the 
ranks  of  the  retailers  has  been  the  older  cooperation 
within.  Each  line  of  retail  business  has  its  own  local 
or  sectional  trade  association,  which  is  included  within 
larger  national  associations.  These  associations 
facilitate  the  exchange  of  information  and  opinion  and 
enable  the  members  to  act  as  a  unit  in  all  matters, 
legislative  or  otherwise,  affecting  their  interests. 

True  retail  cooperation  is  an  affiliation  of  indepen- 
dent retailers.  The  less  closely  affiliated  are  gen- 
erally buying  combines.  Sometimes  the  combine 
organizes  more  closely  as  a  wholesale  company,  as  in 
the  case  of  the  Girard  Grocery  Company  of  Phila- 
delphia; or  as  a  manufacturing  company,  too,  as  in 
the  case  of  the  United  Drug  Company,  the  individual 
members  in  either  case  holding  stock  in  it. 

5.  Combine  of  department  stores, — The  most 
interesting  development  of  this  nature  is  the  recent 
union  of  eighteen  high  class  department  stores  located 
in  non-competing  territories  for  the  purpose  of  secur- 
ing and  exchanging  information  among  themselves, 
and  of  systematized  buying.  The  organization  is 
called  the  Retail  Research  Association.  The  mem- 
bership includes  the  William  Filene's  Sons  Company 


326  MERCHANDISING 

of  Boston,  Scruggs-Vandervoort-Barney  of  St.  Louis, 
The  Emporium  of  San  Francisco,  The  Bon  Marche 
of  Seattle.  Self  ridges  of  London  is  a  recent  member 
and  Paris  and  Melbourne  are  also  represented. 

The  association  makes  two  striking  and  very  signifi- 
cant departures  from  merchandising  tradition.  One 
is  the  weekly  exchange  of  the  most  intimate,  detailed 
and  complete  figures  on  sales,  costs  and  profits  in  all 
lines.  Each  store,  in  other  words,  knows  what  the 
other  stores  are  doing,  how  they  are  doing  it  and 
with  what  results.  Such  a  course  by  a  business  house 
w^ould  have  been  regarded  not  so  long  ago  as  suicidal, 
altho  it  is  true  that  Edward  N.  Hurley,  when  chair- 
man of  the  Federal  Trade  Commission,  made  the 
prediction  that  it  would  not  be  many  more  years'  time 
before  all  business  houses  would  be  exchanging  just 
such  information  as  a  matter  of  course,  in  the  same 
way  and  for  the  same  reasons  that  engineers  and 
other  professional  men  exchange  professional  data. 

At  all  events,  it  is  obvious  after  even  the  most  super- 
ficial reflection,  that  every  member  store  of  the  Re- 
search Association  must  as  the  result  of  cooperation 
obtain  information  of  almost  priceless  value  to  it,  in 
comparison  with  which  the  sacrifice  of  privacy  and 
any  possible  benefit  contingent  upon  it  are  infini- 
tesimal. 

Outside  of  the  exchange  of  store  statistics,  a  service 
has  been  developed  by  the  association  which  supplies 
its  members  with  data  and  illustrations  of  forthcom- 
ing styles.     The  New  York  office  provides  extensive 


COOPERATION  FOR  SERVICE  327 

quarters  for  the  visiting  buyers  of  these  stores.  Con- 
ferences of  such  buyers  of  each  line  as  may  be  in  town, 
take  place  regularly,  programs  for  discussion  being 
prepared  in  advance  and  every  effort  being  made  to 
make  the  meetings  fruitful.  The  association  also  has 
resident  experts  to  assist  the  buyers.  The  buying 
power  of  the  stores  is  not  formally  pooled,  but  the 
effect  of  combination  must  be  somewhat  similar. 

6.  Effects  of  retail  cooperation, — The  working  of 
this  form  of  cooperation,  if  it  continues  to  be  success- 
ful, will  naturally  be  reflected  in  the  increased  pros- 
perity of  the  stores  participating;  in  the  lower  prices 
at  which  they  sell  merchandise ;  or  in  the  larger  stocks 
they  carry.  As  soon  as  this  becomes  apparent,  we 
may  expect  to  see  a  rapid  development  of  similar 
cooperation  among  other  stores  in  non-competing 
territories  and  a  similar  exchange  of  cost  and  sales 
figures. 

It  is  not  difficult  to  realize  that  the  broad  develop- 
ment of  retail  cooperation  would  be  a  blow  to  the 
retail  chain  systems,  since  it  would  deprive  them  of 
virtually  all  the  strategic  advantages  they  may  have 
left  after  the  campaign  of  retail  education  now  pro- 
ceeding, would  enhance  competition,  raise  their  costs, 
and  not  the  least  serious  of  all,  complicate  their 
already  difficult  personnel  problem  by  increasing  the 
temptation  on  the  part  of  the  trained  employes  to 
go  into  business  for  themselves. 

It  is  not  necessary  to  pursue  the  question  as  to  what 
might  follow  if  the  situation  at  length  came  to  be 


328  MERCHANDISING 

dominated  by  retail  cooperative  combines.  Competi- 
tion between  the  several  sectional  and  national  asso- 
ciations, as  well  as  with  the  powerful  manufacturing 
groups;  the  growing  standardization  of  costs  and 
prices;  and  lastly  the  public's  increasing  information 
and  interest  on  all  heads  doubtless  afford  safeguards 
against  any  monopolistic  tendencies  that  might  de- 
velop in  that  quarter. 

7.  End  is  service, — The  public's  greatest  safeguard 
in  the  future  is,  perhaps,  to  be  found  in  none  of  these, 
but  rather  in  the  fast  growing  conception  of  busi- 
ness service.  Service  is  what  cooperation  is  for.  It 
is  the  ideal  of  this  decade,  as  "results"  was  that  of  the 
preceding  one.  Permanently  satisfactory  results  for 
a  house  can  only  be  obtained  thru  enlightened  regard 
for  the  interests  of  the  customer. 

This  is  getting  very  close  to  the  heart  of  the  matter. 
What  in  the  past  was  called  service  has  often  covered 
a  multitude  of  blunders.  Under  the  stress  of  severe 
competition,  it  has  many  times  run  wild.  The  war 
has  brought  about  many  changes.  Much  of  the  econ- 
omy in  service  it  enforced  has  been  found  to  be  sound 
merchandising.  True  service  will  always  center  in 
better  values  and  wider  variety,  at  lower  prices. 
Necessarily  this  rules  out  a  lot  of  the  excessive  frills 
and  sumptuousness  of  surroundings  that  have  been 
supposed  indispensable  for  the  attraction  of  the  pub- 
lic. The  ends  sought  will  rather  be  attained,  all  the 
tendencies  of  the  times  indicate,  by  even  greater  and 
greater  concentration  on  the  fundamentals  of  buying 


COOPERATION  FOR  SERVICE  329 

• 
and  selling,  on  securing  and  exchanging  information, 
on  standardizing  practice  and  increasing  cooperation. 
As  the  present  wastes  and  inefficiencies  are  still  unde- 
niably great,  the  changes  to  be  made  will  no  doubt 
be  equally  so.  Moreover,  they  must  be  so,  in  order 
to  keep  pace  with  the  rapid  manufacturing  develop- 
ment. 

Nobody,  therefore,  can  safely  predict  the  extent  of 
retail  expansion  during  even  the  next  few  years. 
Many  of  the  greatest  opportunities  in  business  are 
certain  to  be  there  and  the  field  is  therefore  as  deserv- 
ing of  study  and  understanding  as  any  other  depart- 
ment of  business. 

REVIEW 

How  do  you  account  for  the  fact  that  so  many  small  retailers 
are  now  interested  in  progressive  merchandising  and  are  getting 
the  benefits  of  all  new  ideas  as  quickly  as  their  more  powerful 
competitors  ? 

What  is  the  watchword  of  the  present  era  in  evolution  of  mer- 
chandising? 

Why  must  combinations  among  independent  retailers  success- 
fully combat  and  perhaps  in  the  long  run  drive  out  of  business 
chain  store  organizations? 

Do  you  think  it  the  part  of  good  business  to  exchange  with 
non-competitors  in  your  line  the  most  intimate  business  informa- 
tion? 


\ 


INDEX 


Accounting    MethoAs,    of    Chains,    ad- 
vantages  of.    249 

Accounting  Service,  of  the  jobber,   69 

Advertising, 

As  agency  in  selling,  20:  In  mapping 
out  the  selling  campaign,  23; 
Test  for  quality  before,  28;  Job- 
ber indifferent  to  manufacturer's 
advertising,  98;  Benefits  of.  105; 
National,  118-130;  Standardiza- 
tion of  price  by,  141 ;  Limited 
opportunities  in  specialty  store 
for,  219;  Department  store,  226; 
Advantages  of  chains  in,  248 

Agencies,   Exclusive, 

See  Exclusive  Agencies,  Selling 
Thru 

Agents, 

Selling,  80-83;  Mill,  83;  Mail- 
order,  136 

Appraising,    the    goods,    in    stockkeep- 
.  ing,   310 

Ayres,    Frederick    A.,    on    Inventories, 
316 


Banking      Function,      of      commission 

merchants,   89 
Brill     Brothers,     and     Holeproof     Ho- 
siery,   107,    110 
Branding, 

Private,    71-76;   Value   of,    141-143 
Broker, 

As  a  type  of  middleman,  90;  Ex- 
tent of  merchandise  brokerage, 
90;  Contract  of,  91;  Commission 
of,  91;  Organization  and  operat- 
ing methods  of,  92 
Badgets, 

Preparing    before    marketing,     178; 
Buying    according    to,    292 
Business  Conditions,   Analysis  of,   200 
Buying, 

Necessity  of,  287:  Organization, 
287;  Guides  to,  288;  Lines  to  be 
carried,  289;  Estimating  possible 
business,  290;  Buying  according 
to  budget,  292 ;  Figuring  the 
turnover,  292 ;  Proper  use  of 
turnover,  294 ;  Determining  gross 
profit,    296;    Price   confirms   qual- 

331 
V  — 23. 


ity,  297;  Attitude  toward  dis- 
counts, 297;  Accrediting  the  dis- 
counts, 298;  Pricing  goods,  299; 
Profits,  300;  Buying  by  monthly 
quota,  300;  Keeping  in  touch 
with  the  market.  301 ;  Selecting 
the  wholesaler,  302:  Concentra- 
tion of  purchases,  302;  Buyer's 
attitude  toward  salesmen,  303; 
Selecting  merchandise  for  qual- 
ity. 304;  Style,  novelty  and  ex- 
clusiveness.  304;  Stocking  new 
lines,  305 ;/  "uyer  must  act  as  a 
merchai 
Buying  Organi/  287 


305 ;/' 
mt.  / 
Santf 


Campaign,   Sel.  Mapping  out,  23 

Catalog,  Mail-Ordei, 
Sellinqf  poM'er  of,    268 

Centers    Shopping,  1 62 

Chain        res, 

M'  uiacturer's.  135;  Rise  of,  233; 
nds  of,  234;  Better  known, 
2b5;  Tendencies  shown  in  the 
field  of.  236;  Elements  of 
strength  in,  238;  Strength  in 
financing,  238;  Advantages  in 
picking  sites,  239;  Standardiza- 
tion of  stores.  240;  Standardiza- 
tion of  selling  methods.  240; 
Buying  advantages,  241 :  Pricing, 
242;  Use  of  loss  leaders.  243; 
Low  expense  of  operation,  243 ; 
Other  advantages,  244:  Quick 
turnovers  and  low  profits.  245; 
Strength  of  service,  246; 
Strength  in  organization.  247; 
in  advertising.  248:  Advantages 
of  accounting  methods,  249; 
"Weaknesses  of,  250;  Meeting 
chain-store  competition,  251; 
"What  the  chain  may  teach,  252 ; 
Manufacturer    and,    253 

Channels  of  Trade, 
See   Trade   Channels 

Civil    War, 

Retailing  before,  206;  Changed 
conditions  in  retailing  after  the 
Civil   "War,    207 

Clayton  Anti-Trust  Law,   104 


332 


INDEX 


Colgate  Company,  Test  for  quality  by 
the,    29 

Commission, 

Contracts,   87;   Rates  of.   87 
'  See    Commission    Merchants 

Commission   Mercbauts,    84 

Functions  of,  85:  Necessity  for, 
85;  Lines  in  which  employed, 
85;  Activities  and  compensation 
of.  86;  Manufacturer's  agents 
and,  86:  Commission  contracts, 
87;  Rates  of  Commission,  87; 
Commission  merchant  aids  the 
manufacturer,  88 ;  Loans  and  ad- 
vances made  by,  89;  Banking 
functions  of,  89 ;  Differences  be- 
tween  broker  and,   90 

Compensation, 

Commission  Merchant's,  86;  Brok- 
er's.    91;    Jobber's,    180 

Competition, 

Middlemen  and,  16;  Competitive 
influences,  55;  Marketing  meth- 
ods of  com])etition,  56;  In  pres- 
ent-day marketing.  63;  Exclusive 
agency  and,  109;  Effect  of,  on 
price,  166;  Radius  of  successful, 
among  jobbers,  199;  Analysis  of, 
by  jobber,  204  Meeting  chain- 
store,  251;  Mailorder.  206:  Mail- 
order competition  and  the  re- 
tailer, 273;  By  mail,  276 
See  Retailer  and  His  Competitors 

Competition,    Retail, 

See  Competition,  Retailer  and  His 
Competitors 

Consumer, 

Relation  to  producer,  3;  Middle- 
man and,  11:  Constitute  the  real 
market,  48:  Methods  of  making 
purchases,  51;  Middlemen  de- 
creasing because  of  demand  of, 
62;  Definition  of,  65:  Confidence 
in  nationally  advertised  goods, 
120;  Purchasing  ability  of.  and 
profits,  166;  Jobber's  service  to, 
186;    Studying  the   needs   of.    202 

Consumers'    Cooperative    Associations, 
237 

Consumer,    Selling  to   tlie 

Means  of  direct  selling.  132;  Spe- 
cialty salesmen,  132;  Manufac- 
turers' chain  stores,  135;  Mail- 
order selling.  135;  Direct-by- 
mail   selling,    137 

Consumption, 

Estimating,    41;    Statistics   in,    42 

Container  of  the  Product, 

Value  of  size,  37;  Value  of  shape, 
87;  Value  of  color.   87 


Convenience,  Goods, 

Defined.   161  ;   Marketing.   162 

Cooperation  for  Service, 

Problems  of  changing  conditions, 
321;  Working  toward  u  coudu- 
sion.  321  .  TncreasiUi;  organiza- 
tion, 322;  Phases  of  Co»>ptration. 
323;  Combine  of  d»j..irtment 
stores,  325;  Effects  of  rt'lail  co- 
operation, 327;  Lud  is  service, 
328 

Cooperative    Associations,    235 

Cooperative  Jobbing. 

Idea  of.  193;  Forms  of  cooperation. 
194:  Of  retailers,  194;  Buying 
arrangements  of.  195;  Merchan- 
dise limited  to  staple  brands, 
195;  Selling  expenhes  low.  196; 
Returning  and  exciianging  goods 
in.  196;  System  of  pruing,  196; 
Short-term  credits,  197;  Deliver- 
ies of:    107 

Costs  and  Profits,  32 

Credit,    Determination    of    amount    of, 
167 

Credit  Service,  of  the  jobber.   69,   96, 
184 

Crisco,    Testing.    27 


Deliveries,  of  Cooperative  jobbing,  197 

Demand, 

Labor  supply  and.  31  ;  Influence  of 
price  on,  32 :  Demand  f  )r  the 
product,  39;  Volume  of,  39:  Test- 
ing in  advance,  42 ;  Effected  by 
nature  of  goods,  43;  Seasonal, 
44 

Department  Store, 

Rise  of,  as  development  of  post- 
Avar  period,  208;  General  store, 
departmentized,  211:  Rise  of, 
222;  Two  kinds  of.  223:  Reason 
for  popularity  of,  223 ;  Elements 
of  strength  of,  224 :  Economies 
in  comliinations.  226:  Piissibili- 
ties  in  h.indling  low  salaried  help, 
226:  Advertising  and  service  ad- 
vantages. 226;  Credit  on  a  better 
basis,  227:  Better  management, 
228;  Manipulation  of  depart- 
ments, 228;  Weakness  in,  229; 
Expensive  delivery  systems.  231;' 
Libraries  and  rest  rooms  in,  284; 
Junior  courses  in.  284;  Coopera- 
tion with  public  schools.  285; 
Training  non-selling  employes, 
285;  Results  of  educational  work, 
286;   Combine  of,   325 


INDEX 


S33 


Depreciation, 

Meauiiig  of,  307;  Causes  of,  308; 
Remedy  for,   308 

Direct-by-Mail   Selling,    137 

Direct   Selling, 

See    Selling    Direct 

Discounts, 

Granting  of,  168;  Secret,  169;  At- 
titude toward,  297;  Accrediting 
the.    298 

Distribution,   Modern, 

Producer  and  consumer.  3 :  What 
determines  the  distributing  ma- 
chinery, 4:  Increased  specializa- 
tion in  industry.  5;  Large -scale 
production,  7 ;  Economic  basis  of 
modern  marketing,  7 ;  Selling 
problems  versus  manufacturing 
problems,  8;  Who  is  a  middle- 
man, 9 ;  Greatest  of  the  middle- 
men, 10;  Middlemen  and  the  man- 
ufacturer. 11;  Middlemen  and  the 
consumer.  11;  Aid  in  stabilizing 
prices,  12;  Middleman  as  a  pro- 
ducer, 12;  Four  kinds  of  utilities, 
14;  Some  middlemen  must  go, 
15;  Middlemen  and  competition, 
16;  Growing  importance  of,  19; 
Competition  in  present-day  mar- 
keting. 63;  Jobber  specializes  in, 
67;  General  effect  of  price-cut- 
ting on,    149 


Economical   Development,    Three   steps 
in.    4 

Economic  Basis  of  Modern  Marketing, 
7 

Educational      Work,      of      Department 
Stores.    284-86 

Ely,  Professor  Bichard  T.,  on  Services 
of   the  Middleman,    13 

Exchange, 

Middleman's  part  in.    6 

Exclusive  Agencies,  Selling  Thru, 
Choice  of  means,  103 :  Legal  ques- 
tions involved.  103 ;  Interests  of 
the  dealers  and  manufacturers. 
104 ;  Why  retailers  like  exclusive 
agencies,  105;  Prices  maintained, 
105;  Benefits  of  advertising,  105; 
Prestige,  106;  New  trade,  106; 
Close  relations  with  manufac- 
turer, 106;  Opposition  of  dealers, 
107;  Abuse  of  the  exclusive 
agency  idea,  107;  Manufacturer' s 
position,  108;  Are  exclusive  agen- 
cies taken  away?,  108;  Does  the 
exclusive  agency  discourage  com- 
petition?,    109;     Why     manufac- 


turers favor  exclusive  agencies, 
110;  Shopping  lines.  111;  Large 
or  expensive  stock.  111;  When 
more  sales  attention  is  needed, 
112;  Installation,  operation,  serv- 
ice, 112;  Control  of  price.  113; 
Value  in  introducing  goods.  1 13 ; 
Unadvertised  goods,  113;  Dealers 
give  active  support,  113 :  When 
manufacturers  oppose  the  idea, 
114;  Desire  for  greater  sales, 
115:  Do  exclusive  agents  always 
push  goods?,  115;  Extent  of  ex- 
clusive agencies,  115;  Dealers 
versus  manufacturers.  116 
Exclusiveness,  in  selection  of  mer- 
chandise, 304 

Factors.  Work  of,   8  4 
"Family  of  Products,"  46 
Free  Deals, 

Granting    of,     169 ;    A    price    reduc* 
tion.    170 


General  Store, 

Rise    of,    211;    Reasons    for   confine- 
ment   to    small    community.    212 
Reasons    for   holding    trade,    212 
Reasons    for     losing     trade,     213 
Opportunity  of.   213;    Lines  to   be 
carried   in.   289 

Geographical    Limits    of    the    Market, 
50 

Good-Will  and  Price  Maintenance, 
See    Price    Maintenance    and    Good- 
Will 

Gross    Profit,    Determining,    296 

Guarantees, 
Use  of.   171 

Hurley,  Edward  N.,  326 

Industry, 

Increased  specialization  in,  5 ;  Mid- 
dleman in,  6 

Influencing  Retail  Sales, 

See   Retail   Sales,    Influencing 

Inventories, 

Physical,  use  of,  315;  Perpetual  or 
book,  315;  Frederick  A.  Ayres 
on,  316;  Methods  of  preparing 
for.  317:  Preliminary  work  for, 
317;  Inspecting  stock  during. 
318;  Taking  stock  while  business 
goes  on,  319;  Arran°;ement  of 
books  of,  319;  Subdividing  of, 
319 

Invoicing,  the  goods,   309 


SS4i 


INDEX 


Jobber,  Cooperative.  193-97 

Jobber,  Manufacturing,  188-91 

Jobber,  Problems  of, 

Radius  of  successful  competition, 
199 ;  Analysis  of  business  condi- 
tions, 200;  Conditions  in  the  in- 
dustry. 201;  Studying  the  needs 
of  the  consumer.  202 ;  Knowing 
the  retailer,  203;  Analyzing  com- 
petition,  204 

Jobber,  Selling  to, 

Consumer  unfamiliar  with  jobber's 
service,  67 ;  Jobber  specializes 
in  distribution,  67;  Jobber  pro- 
vides sales  force.  68;  Jobber's 
intensive  cultivation  of  markets, 
68 ;  Jobber  gives  storage  service, 
69;  Jobber's  credit  and  account- 
ing service,  69;  Using  jobber's 
service  in  part,  70 ;  Making  the 
jobber's  service  more  profitable. 
71;  Jobber  and  the  private  brand, 
71 ;  Why  manufacturers  make  i)ri- 
vate  brands.  73 ;  Profit  on  private 
brands.  74 ;  Dangers  in  making 
private  brands.  75;  Should  all 
goods  bear  manufacturer's  name?, 
76:  Summing  the  case  of  the  pri- 
vate brand.  76 
See  Jobber.    Problems  of 

Jobber,  Service  of.  Modification  of. 
Manufacturing  jobber  defined,  188; 
Advantages  of  combining  distrib- 
utive functions,  188;  Economy  in 
methods  of  production,  188; 
Economies  in  stockkeeping,  189; 
Long  credits  on  private  brands, 
189;  Methods  of  organization, 
190;  Semi-jobber  defined.  191; 
Why  semi-jobber  has  developed, 
191;  Methods  of  organization, 
192 ;  Cooperative  jobbing  idea, 
193;  Forms  of  cooperation,  194; 
Buying  arrangements  of  coopera- 
tive associations.  195;  Merchan- 
dise limited  to  staple  brands, 
195;  Selling  expenses  low,  196; 
Returning  and  exchanging  goods, 
196:  System  of  pricing,  196; 
Short  term  credits,  197;  Deliv- 
eries. 197 

Jobber,  The, 

Typical  middleman.  65;  Services  of, 
67-73;  Private  brand  and.  71; 
Aid  in  keeping  complete  stock, 
95;  Credit  service  of,  96;  Un- 
able to  give  exclusive  attention, 
97;  Indifferent  to  manufacturer's 
advertising,  98;  Manufacturer 
checks  up  advertising  without  aid 


of,  98;  Cutting  of  price  by,  100; 
Attitude  toward  mail-order,  259; 
Scope  of  treatment,  179;  What 
are  jobbing  lines,  180;  Pay  of, 
180;  Retailer  and,  181;  Diffi- 
culty in  keeping  complete  stock. 
182 ;  Necessity  of  seeing  many 
salesmen.  182;  Unbalanced  stock, 
183;  Need  of  more  capital,  184; 
More  storage  space  required,  184; 
Credit  arrangements  would  cease. 
184;  Elimination  of  the  small 
dealer.  185;  When  the  jobber  is 
necessary.  185;  Service  to  con- 
sumer. 186 
See  Jobber,  Service  of;  Jobber,  Sell- 
ing to 

Jobbing  Lines, 
Four   staple.    180 

John    Wanamaker    Commercial    Insti- 
tute, 284 

Junior  Courses, 

Use  of.  in  department  stores,  284; 
John  Wanamaker  Commercial  In- 
stitute. 284:  Results  of  educa- 
tional work,  286 


Labor  Supply,  31 

Legal  Questions,  involved  in  exclusive 
agencies,   103 

Libraries, 

Use    of,    in    department    stores,    284 

Loans,    and  Advances,    made   by    com- 
mission merchants,   89 

Loss  Leaders, 

Use  of,   by  chains.   243;   Use  of,  by 
mail-order  houses,  272 


MaU-Order  SeUing, 

Thru  catalogs,  135;  Thru  agents, 
136;  Direct  by-mail.  137;  Signifi- 
cance of  mail-order  development. 
255;  Extent  of.  257:  Retailer's 
attitude  toward,  258;  Jobber's  at- 
titude toward,  259;  Manufac- 
turer's attitude  toward,  259;  At- 
titude of  the  public  toward.  260; 
Kinds  of.  260:  Reason  for.  261; 
Legitimate,  262 ;  Justification  of, 
264:  Creating  business  by,  265; 
Competitive  strength  of,  266: 
Wide  variety  of  selection,  266; 
Low  capital  and  overhead,  267: 
National  in  scope.  268;  Selling 
power  of  the  catalog,  268;  Loav 
prices,  269;  Elements  in  selling 
price,  269;  Influence  of  quantity 
upon    price,    271 ;    Trade    favors. 


INDEX 


335 


271;  "Loss  L3aders,"  272;  Ad- 
vantages of,  not  inherent,  273; 
Retailer  and  mail-order  competi- 
tion, 273;  Purchaser  picks  out 
his  own  goods,  274;  Quick  de- 
livery, 274;  Merchants'  good-will, 
275;  Personal  service,  275;  Ap- 
pealing to  community  pride,  275; 
Competing  in  price  and  service, 
276;  Competing  by  mail.  276; 
One  reason  for  failure  to  com- 
pete. 277 
Manufacturer, 

Problem  of,  versus  selling  problem, 
8;  Middleman  and,  11;  Market- 
ing and  the,  19 ;  Mapping  out  of 
selling  campaign  by.  23 ;  Testing 
the  product  of.  27-29;  Testing 
raw  materials  by,  29;  Choosing 
name  for,  34;  Making  his  article 
attractive,  36-38:  ' 'Fatnily  of 
Products"  and  the,  46;  Sources 
of  the  market  for,  49 ;  Competi- 
tive influences  and.  55;  Limita- 
tion of  market  of,  by  transporta- 
tion, 64;  Functions  of,  64;  Use 
of  jobber's  service  by  the,  70; 
Private  brand  and,  71-77:  Why 
make  private  brands,  73 ;  Should 
all  goods  bear  the  name  of  the 
76;  Selling  agent  of,  80;  Com- 
mission merchants,  and  agents  of 
the,  86;  How  commission  mer- 
chant aids  the,  88 ;  Loans  and  ad- 
vances made  by  commission  mer- 
chant to.  89;  Retailer's  problems 
affect,  94;  Necessity  of  ware- 
houses in  direct  selling,  by  the, 
94;  Problem  in  selling  to  the 
retailer,  94-102;  Expense  to.  to 
handle  small  orders,  96;  Credit 
arrangements  difficult,  96;  "Why 
the  manufacturer  sells  direct, 
97;  Jobber  indifferent  to  adver- 
tising of,  98;  Checking  up  adver- 
tising of.  98;  Complete  lines  now 
handled  by.  100;  Choice  of  trade 
channels,  103;  Choice  of  means 
of  marketing  product,  103:  In- 
terests of.  104 ;  Exclusive 
agencies  and,  103-16;  Dealer  and. 
as  result  of  exclusive  agency, 
103:  Close  relations  with,  of  the 
dealer,  106;  Position  of,  toward 
exclusive  agency.  108 ;  Reasons 
for  favoring  exclusive  agency, 
110;  Opposition  to  exclusive 
agency,  114:  Desire  for  greater 
sales,  115;  Dealers  versus.  116; 
Claims   of,    for   national   advertis- 


ing. 119;  Value  in  name  of,  121; 
Selling  aids  provided  by.  124; 
Shopping  lines  and  convenience 
goods.  161,  163:  Use  of  guaran- 
tees, 171;  Jobber's  services  to, 
181;  Services  of  jobber  to.  182- 
86;  Chain  store  and  the,  253; 
attitude  toward  mail-order  sell- 
ing. 259 
Manufacturers'  Chain  Stores,  234 
Manufacturing  Jobber, 

Defined,    188;    Long  credits   on   pri- 
vate brands.   189;  Methods  of  or- 
ganization,   190 
Market, 

Agencies  used  to  reach  the,  20; 
Boundaries  of.  22 ;  Mapping  out  a 
selling  campaign  for,  23 ;  As  an 
important  element  in  marketing, 
27;  Testing  for  the,  27;  Testing 
demand  in  advance,  42;  Jobber's 
intensive  cultivation  of.  68;  Keep- 
ing in  touch  with,  301 
Marketing, 

Economic  basis  of.  7;  Middleman  a 
factor  in,  8:  Method  of  competi- 
tion, 56 ;  Competition  in  present 
day.  63 ;  Choice  of  means  of, 
103 ;  Correct  judgment  necessary 
to.  160;  Shopping  lines,  161, 
163;  Convenience  goods,  161, 
163;  Preparing  budgets  before, 
173 

See  Market,   Study  of  the 
Marketing,    Field   of, 

Growing  imi)ortance  of  distribu- 
tion, 19;  What  is  marketing.  19; 
Agencies  used  to  reach  markets, 
20;  Boundaries  of  the  market, 
22 :  Mapping  out  a  plan  of  cam- 
paign. 23;  Single  purpose  of  sell- 
ing activities.  24;  Need  for 
studying  market,  25;  Survey  of, 
25:  Necessary  considerations  be- 
fore marketing.  27;  Competition 
in.   63 

See   Market.    Study  of  the 
Market,  Reaching  the. 

Absence  of  standards  in  selling, 
160;  Correct  judgment  necessary 
to  marketing.  160;  Shopping 
lines  and  convenience  goods  de- 
fined, 161:  Shopping  centers. 
162;  Marketing  shopping  linea 
and  convenience  goods.  162;  De- 
termining price,  164;  Components 
of  price.  164;  What  determines 
profit.  165;  Sales  policy.  167: 
Credit,  167;  Quality  prices  and 
discounts,    168;    Free    deals    and 


336 


INDEX 


secret  discounts,  169;  Guarantees, 
171;  Service,  172;  Preparing 
budgets  before  marketing,  173; 
Cooperation  with  dealers,  174; 
Sales  records,    175 

Market,  Study  of  the, 

What  constitutes  the  market,  48; 
Sources  of  the  market.  49 ;  Geo- 
graphical limits  of  markets,  50; 
Methods  of  making  purchases.  51 ; 
Tendency  of  market  to  increase 
or  decrease.  54;  Competitive  in- 
fluences. 55 ;  Transportation  lim- 
its markets.    57 

Marking,    the    goods    in    stockkeeping, 
310 

Men's   Wear,    121 

Merchandise  Brokerage,  Extent  of,  90 

Merchandise,     Studying,     283 

Merchandising, 
Meaning  of,  19 

Middleman, 

Function  of,  3 :  Rise  of.  6 ;  As  a 
factor  in  marketing.  8 ;  Who  is 
the  middleman,  9;  Greatest,  10; 
Manufacturer  and,  11;  Consumer 
and.  11;  Work  of,  11;  Aid  of,  in 
stabilizing  prices,  12;  As  a  pro- 
ducer. 12;  Professor  Richard  T. 
Ely  on,  12;  Main  function  of,  to 
create  utilities.  14;  Some  must 
go.  15;  Competition  on.  16;  De- 
creasing in  number,  61;  Over- 
lapping of  functions,  80;  Broker 
as  a  type  of.  90 
See  Wholesale  Middlemen 

Middlemen,    Wholesale, 
See  Wholesale  Middlemen 

Mill  Agents.   83 

Modern  Distribution, 

See   Distribution,   Modern 

Monopolies, 

Effect  of.  on  middleman,  16;  In 
Germany,  16;  Sherman  Law  and, 
15 


Name  for  Product, 

Restrictions  on,  34:  "Gold  Dust 
Twins,"  34;  Proctor  and  Gamble 
Company  "P.  &  G.  Naphtha" 
soap,  35;  Brevity  desired.  35; 
Value  of,  on  goods,  126 
ITational  Advertising, 

As  distinguished  from  local.  118; 
Thru  magazines.  118;  Manufac- 
turers' claims  for.  119;  Claim  of 
quality  by  nwinufacturer,  119; 
Value  in  manufacturer's  name, 
121;    Increase   in   sales  by,    122; 


More  frequent  turnover  by.  123; 
Opposition  to,  125;  Does  not  con- 
fer quality.  125;  Intiuence  of, 
127;  Price  cutting,  problem  for 
national   advertiser.s,    144 

New  England  Grocer  and  Tradesman, 
129 

New   Lines,    stocking.    305 

Novelty,  in  selection  of  merchandise, 
304 


Operation  of  Chains,   low   expense   of, 
243 

Organization,  Methods  of, 

Of  manufacturing  jobbers,  190;  Of 
semi  jobbing,  192;  Of  chains.  247; 
Buying  organization,  287;  In- 
creasing.  322 


Parlin,  C.  C,  on  trade  channels,   161- 
62 

Plant   Capacity,    30 

Price  Cutting, 

Advertises  dealer.  143:  Demoralizes 
trade.  143;  Harms  small  dealers, 
144;  Problem  for  national  ad- 
vertiser. 144;  Defense  of.  146; 
General  effect  of.  on  distribution, 
149:  Decisions  against,  151-59; 
Issue  one  of  trademark  protec* 
tion,  152;  Public  interest  and, 
153 ;  Waiting  for  Congress  or  th^ 
Supreme  Court  on,    157 

Price  Maintenance  and  Good-Will, 
Price  maintenance  defined,  139; 
Price  maintenance  an  issue.  139; 
Rise  and  development  of.  140; 
Advertising  standardizes  price, 
141;  Price-cutting  advertises 
dealer  who  does  it,  143 ;  Price- 
cutting  demoralizes  trade,  143; 
Problems  for  national  advertisers, 
144;  Price  cutters'  defence.  146; 
Price  maintenance  thru  contracts, 
146;  Price  maintenance  thru  con- 
tract illegal.  147;  General  effect 
on  distribution,  149;  Ray  of  hope 
for,  150;  Issue  one  of  trade  mark 
protection,  152;  Price  mainte- 
nance and  the  public  interest, 
153;  Waiting  for  Congress  or  the 
Supreme  Court,   157 

Prices, 

Aid  of  middleman  in  stabilizing.  12; 
Manufacturer  and.  32;  Costs  and 
profits,  32;  Influence  of.  32.  Cut 
by  jobber.  100;  Maintenance  of, 
105;  Control  of,  113;  Price  main- 


INDEX 


337 


tenance,  139-151 ;  Stendardiza- 
tion  of,  by  advertising.  141 ;  De- 
termination of.  164;  Governed  by 
law  of  demand  and  supply,  164; 
Components  of,  164;  Selling  price, 
165;  Influence  of  competition  on, 
166;  Quantity  and  quality,  168- 
69;  Cooperative  jobbing  system 
of  pricing,  196;  chain  store,  242; 
Low  in  mailorder  selling,  269; 
Elements  in  selling  price,  269; 
Influence  of  quantity  on,  in  mail- 
order selling,  271;  Competition 
in,  by  retailer,  276;  Confirmation 
of  quality  by.  297;  Pricing  goods, 
299 
See  Price   Maintenance 

"Printer's  Ink," 

On  position  of  the  jobber.  67;  On 
Holeproof  Hosiery,  110;  Chain 
store  sites,  239 ;  On  mailorder 
selling,    259 

Private  Brand, 

Jobber  and,  71;  Attitude  of  manu- 
facturer toward,  73;  Why  manu- 
facturers make  private  brands, 
73 :  Profit  on.  74 ;  Dangers  in 
making,  75;  Summing  up  the 
case  of  the,  76;  Long  credits  on, 
by  manufacturing  jobber,    189 

Problems  of  the  Jobber, 
See  Jobber,    Problems  of 

Procter  and   Gamble  Company,   34 

Producer, 

Relation  to  consumer,  3;  Influence 
of  rise  of  middleman  on,  5 ;  Mid- 
dleman as  a,  12;  Former  position 
of,  19;  Marketing  and  the,  19; 
Agencies  of.  to  reach  the  market, 
20;  Mapping  out  of  selling  cam- 
paign by,   23 

Product, 

Testing  for  quality,  27-29;  Influ- 
ence of  price  of,  32 ;  Naming, 
34:  Quality  of  attraction  in,  36; 
Container  of,  37;  Examining  for 
selling  points,  38;  Demand  for, 
39;  Estimating  consumption  of, 
41 ;  Testing  demand  for,  in  ad- 
vance, 42;  "Family  of  Products," 
46;  Price  of,  cut  by  jobbers, 
100;  Advertising  nationally,  118; 
Value  of  name  of,  on  goods,  126; 
"Value    of   branding   of,    141 

Production,    Methods    of,    economy   in, 
188 

Product,    Study  of  the, 

Necessary  considerations  before 
marketing.  27;  Testing  the  prod- 
uct.   27;    Tests    for    quality,    28; 


Raw  materials,  29;  Plant  capac- 
ity, 30;  Labor  supply.  31;  Costs 
and  profits,  32 ;  Influence  of 
price,  32 ;  Naming  the  product, 
34;  Quality  of  attraction,  36; 
The  container,  37;  Examining  the 
product  for  selling  i)oints.  38; 
Demand  for  the  product.  39 ;  Es- 
timating consumption,  41;  Test- 
ing out  demands  in  advance,  42 ; 
Demand  afi'ected  by  nature  of 
goods.  43;  Seasonal  demand,  44; 
"Family  of  products,"   46 

Profit, 

On  making  private  brands,  74; 
Question  of.  on  nationally  ad- 
vertised goods.  128;  Determina- 
tion of,  165;  Purchasing  power 
of  consumer  and.  166;  Low,  in 
chains,  245;  Determining  gross, 
296;  What  is  considered  fair 
profit,   300 

Purchases, 

Methods  of  making,  51;  Buying 
habits  in,  51 ;  Selling  to  the  con- 
sumer,  51;    Concentration  of,   302 

Public, 

Attitude  of,  toward  mailorder  sell- 
ing. 260 


Raw  Materials, 

Test  of,  29;  Cost  of.  29 

Reaching  the  Market, 

See   Market,    Reaching  the 

Reserve  Stock, 

Keeping  low,  311;  Reasons  for, 
312;  Arrangement  of,  313; 
Grouped   by   lines.    313 

Rest    Rooms,     in    Department    Stores. 
284 

Retail  Chain   Stores,   234 

Retail  Competition, 

See  Retailer,  and  His  Competitors 

Retailer, 

Greatest  of  middlemen,  10;  Defini- 
tion of,  65;  Selling  to,  94-102; 
Interests  of.  104;  Reasons  for 
liking  exclusive  agencies,  105; 
Benefits  of  advertising  to,  105; 
Close  relations  with  manufacturer 
thru  exclusive  agency.  106;  Sup- 
port of  exclusive  agency  by,  114; 
Manufacturer  versus.  116;  Sell- 
ing aids  provided  by  manufac- 
turer, 124;  Advertised  lines  make 
dealers  dependent.  129 :  Adver- 
tised by  price  cutting,  143;  Co- 
operation with.  174;  Jobber  and, 
181;    Cooperative    jobbing    with. 


338 


INDEX 


194;  Knowing  the,  203;  Number 
of,  206;  Necessity  for,  210;  Mail- 
order selling  and  the,  258;  Mail- 
order competition  and,  273 ;  Per- 
sonal service  of,  275;  Selecting 
the.  302 

See   Retailer,    Selling  to 
Betailer  and  His  Competitors, 

Magnitude  of  retailing.  206;  Re- 
tailing before  the  Civil  War,  206; 
Changed  conditions  in  retailing 
after  the  Civil  War.  207;  New 
basis  of  competition.  209;  Neces- 
sity of  retail  store,  210 
Betailer,   Selling  to. 

Retailer's  problems  affect  the  man- 
ufacturer, 94;  Channels  thru 
which  retailer  is  reached,  94; 
Need  for  warehouses  in  direct 
selling.  94;  Difficulties  in  keeping 
complete  stocks,  95 ;  Expensive 
to  handle  small  orders,  96;  Cred- 
it arrangements  difficult,  96; 
Why  the  manufacturer  sells  di- 
rect, 97;  Jobber  unable  to  give 
exclusive  attention,  97;  Jobber  in- 
different to  manufacturer's  ad- 
vertising, 98 ;  Manufacturer 
/  checks    up    advertising.    98 ;    Job- 

bers cut  the  price,  100;  Selling 
direct,  100;  Complete  lines  now 
handled  by  manufacturers.  100; 
Nature  of  commodities  may  de- 
mand direct  selling,  101;  Dense 
population  aids  selling  direct.  102 
Retailing, 

Magnitude  of,  206:  Before  the  Civil 
W;tr,    206;    After   the    Civil   War, 
207 
Retail  Sales,  Influencing, 

What  national  advertising  is,  118; 
Manufacturers'  claims  for  na- 
tional advertising,  119;  Claim  of 
quality,  119;  Value  in  manufac- 
turer's name,  121;  Increase  in 
sale.  122 ;  Decrease  in  selling 
costs.  122;  More  frequent  turn- 
overs. 123 ;  Manufacturers  pro- 
vide selling  aids,  124;  Opposition 
to  national  advertising,  125;  Na- 
tional advertising  does  not  confer 
quality,  125;  Name  on  the  goods, 
126;  Influence  of  national  adver- 
tising, 127:  Question  of  profits, 
128;  Advertised  lines  make  deal- 
ers dependent,  129;  Channels  for 
unadvertised  goods  narrowing. 
130 
Retail  Types, 

Rise  of  the  general  store,  211;  How 


the  country  general  store  holds 
trade.  212;  Why  the  country  gen- 
eral store  loses  trade,  213;  Op- 
portunity of  the  country  store, 
213;  Competitive  strength  of  the 
specialty  store,  214;  Convenience, 
214;  Complete  stocks.  215;  Per- 
sonal service,  215;  Rapid  turn- 
over, 216;  Low  expenses,  216; 
Points  of  weakness  in  specialty 
stores  218;  Limited  opportunities. 
218;  Limited  opportunities  for 
advertising,  219;  Limited  lines, 
220;  Weakness  in  buying,  220; 
Poor  management,  221;  Future 
for  specialty  store,  221 ;  Rise  of 
the  department  store,  222 ;  Two 
kinds  of  department  stores.  223 ; 
Why  the  department  store  is  pop- 
ular, 223;  Elements  of  depart- 
ment store  strength.  224;  Econo- 
mies in  combination.  226;  Pos- 
sibilities in  handling  low-salaried 
help,  226;  Advertising  and  serv- 
ice advantages,  226;  Credit  on  a 
credit  basis,  227;  Better  manage- 
ment, 228;  Manipulation  of  de- 
partments, 228 ;  Financial  advan- 
tages, 229;  Elements  of  weakness 
in  department  stores.  229;  Ex- 
pensive delivery  systems,  231 
Rike-Kumler  Company,   286 


Sales  Force,  Training  the, 

"The  salesman  in  the  store."  279; 
Explaining  the  store  policy,  280; 
Teaching  the  store  system,  281; 
Beginning  actual  selling.  282: 
Special  and  general  bulletins, 
283;  Studying  merchandise,  283; 
Libraries  and  rest  rooms,  284 : 
Junior  courses.  284;  Cooperating 
with  public  schools.  285;  Train- 
ing non-selling  employes.  285; 
Results  of  educational   work,   2S6 

Salesmanship, 

As  agency  in   selling.   28 

Salesmen,    Specialty,    132 

Sales  Policy,  167 

Credit  and.  167;  Quality  prices  and 
discounts  and,  168;  Free  deals 
and  secret  discounts.  169;  Guar- 
antees and.  171;  Service  and,  172 

Sales  Records,  175 

Sales,  Retail, 

See   Retail   Sales.   Influencing 

Seasonal  Demands,  44 

Selling, 

Versus  manufacturing  problems,    8; 


INDEX 


S39 


Examining  the  product  for  sell 
iug  products,  38";  Jobber  provides 
sales  force.  68 ;  Need  for  ware- 
houses in  direct  selling,  94;  De- 
crease in  selling  costs  thru  ad- 
vertising. 122 ;  Manufacturers 
provide  aids  for,  124;  Mailorder. 
135;  Direct  by-mail.  137;  Ab- 
sence of  standards  in.  160; 
Standardization'  of  methods  of,  by 
chains,  240 
See  Sales  Force,  Training  the 
Selling  Agent, 

Of    manufacturer,    80;    Function    of. 
81;   Classes  of.   82;   Compensation 
of,      83 ;      Commission     merchants 
and  manufacturer's  agent,  86 
Selling  Campaign, 

Mai)ping  out.  23;   Single  purpose  of, 
24;     Examining    the    product    for 
selling  points,   38 
Selling  Direct, 

Necessity  for  warehouses  in,  94; 
Problem  of,  100 ;  Nature  of  com- 
modities may  demand.  101; 
Dense  population  aids.  102; 
Means  of;  132 
Selling  Thru  Exclusive  Agencies, 

See      Exclusive      Agencies,      Selling 
Thru 
Selling  to  the  Consumer, 

See  Consumer,   Selling  to  the 
Selling  to  the  Jobber, 

See  Jobber,   Selling  to 
Selling  to  the  Retailer, 

See   Retailer,    Selling  to 
Semi-Jobber, 

Defined.    191;    Reasons   for   develop- 
ment   of.     191 ;     Methods    of    or- 
ganization,   192 
Service, 

As  a  part  of  sales  policy,  172;  Per- 
sonal, in  specialty  store.  215; 
Department  store.  226;  Strength 
of  chain  store,  246;  Personal,  in 
retail  selling,  275;  Cooperation 
for.  321-29 
See  Cooperation  for  Service 
Service,  of  the  Jobber, 

Consumer  unfamiliar  with,  67;  Pro- 
vides   sales    force.    68;    Intensive 
cultivation     of     the    market,     68; 
Gives  storage   service.    69 ;   Credit 
and   accounting,    69;    Use   of,    70; 
Making  it  profitable,   71 
See  Jobher.    Services  of 
Shopping  Centers,   162 
Shopping   Lines,    111 

Defined.    161;    Marketing,    162 
Sites,  Picking,  by  chain  stores.   239 


Sources  of  the  Market,  49 

Specialization, 

Increased  in  industry,  5;  Rise  of 
middleman,    cause    of,    6 

Specialty  Salesmen, 

High  grade  of  salesmanship.  132; 
Use  of.  132-35;  Best  type  of, 
134;  Work  of,   134 

Specialty  Store, 

Competitive  strength  of,  214;  Con- 
venience of.  214;  Complete  stock 
of,  215;  Personal  service  in,  215; 
Rapid  turnover  in,  216;  Low  ex- 
penses, 216;  Points  of  weakness 
in,  218;  Limited  opportunities 
for  trade,  218;  Limited  oppor- 
tunities for  advertising.  219; 
Limited  lines.  220;  Weakness  in 
buying,  220;  Poor  management, 
221;   Future  for.   221 

Standardization,  in  Chain  Stores, 

Of  stores.  240;  Of  selling  methods, 
240 

Standards, 

Absence   of.    in    selling,    160 

Staples,    Selling   of,    63 

Stockkeeping, 

Economies  in,  189;  Necessity  for. 
307;  I>epreciation  and  its  cause, 
307:  Receiving  the  goods.  308; 
Invoicing  the  goods,  309;  Mark- 
ing the  goods,  310;  Appraising 
the  goods,  310;  Keeping  reserve 
stocks  low.  311;  Arrangement  of 
reserve  stocks,  313;  Active  or 
"forward"  stock,  314;  Impor- 
tance of  keeping  track  of  stock, 
314;  Methods  of  preparing  for 
inventory.  317;  Preliminary 
work,  317;  Inspecting  stock, 
318;  Changes  after  first  count, 
318;  Taking  stock  while  business 
goes  on.  319;  Arrangement  of  in- 
ventory books,  319;  subdividing 
the  inventory.   319 

Stocks, 

Difficulties   in   keeping  complete.    9; 
Large    or    expensive.     111;    Diffi- 
culty   in    keeping    complete.    182; 
Unbalanced.   183 
See   Stockkeeping 

Storage  Service,  of  the  jobber.  69 

Store   System,   Teaching  the.   in  train- 
ing the   sales  force,   281 

Study  of  the  Market, 

See  Market,   Study  of  the 

Study  of  the  Product, 

See  Product.   Study  of  the 

Style,     in     selection    of    merchan4ise, 
304 


340 


INDEX 


Taking  Stock, 

See    Inventories 
Testing   the   Product,    82 

Tests  for  quality.  28 
The   Retailers'    Men's   Apparel   Maga- 
zine,  123 
Trade    Channels, 

Development  of,  60;  Old  chain  of 
distribution,  61 ;  Middlemen  de- 
creasing, 61 ;  Competition  in 
present-day  marketing,  63;  Meth- 
ods of  trade  in  selling  staples, 
63;  Functions  of  the  manufac- 
turer, 64:  The  jobber,  65;  The 
retailer,  65:  The  consumer,  65; 
Choice  of.  103 
Trade    Favors,    in    Mail-order    selling, 

271 
Trade-Mark, 

Protection     of,     152 ;     Price-cutting 
and,   153;   Granted  for  protection, 
154 
Trade  Methods,   in   selling  staples,   63 
Training  the  Sales  Force, 

See  Sales  Force,  Training 
Transportation, 

Limitation  of  markets  by,   57;   Cost 
of,  in  competition,  199 
Turnover, 

Increase  in,  thru  advertising,  123; 
Rapid  turnover  in  specialty  stores, 
216;  Rapid  in  chain  stores,  245; 
Figuring  the,  292;  Proper  use  of, 
294 


Unadvertised  Goods, 

Channels  for.   narrowing.    100 
United  States  Cigar  Company,  280 


Utilities,  Four  kinds  of. 

Definition  of  a  utility,  14;  Ele- 
mentary utility.  14;  Form  utility, 
14;  Place  utility,  14;  Time  util- 
ity.   14 

Warehouses, 

Need  for,  in  direct  selling,  94 

Weld,  Dr.  L.  D.  H., 

Work  performed  by  wholesale  mid- 
dlemen, 79 

Wholesale  Middlemen, 

Functions  of  other  types  of  mid- 
dlemen, 79 ;  Overlapping  of  func- 
tions, 80;  Manufacturer's  selling 
agent,  80 ;  What  the  sales  agent 
does,  81;  Classes  of  selling 
agents,  82;  The  agent's  compen- 
sation, 83;  Mill  agents,  83;  Fac- 
tors, commission  merchants  and 
brokers,  84;  Functions  of  the 
commission  merchant,  85;  Neces- 
sity for  the  commission  merchant, 
85;  Activities  and  compensation 
of  commission  merchants,  86; 
Commission  merchants  and  man- 
ufacturers' agent.  86;  Commis- 
sion contracts,  87;  Rates  of  com- 
mission, 87;  How  the  commission 
merchant  aids  the  manufacturer, 
88;  Loans  and  advances,  89;  The 
banking  function,  89  ;  The  broker, 
90;  Extent  of  merchandise  brok- 
erage, 90;  Broker's  contract.  91; 
Broker's  commission,  91;  Brok- 
er's organization  and  operating 
method,    92 

Wholesaler, 

See   Wholesale   Middlemen 


THE-PLIIIPTON-PSESS 
NOBWOOD-MASS-U-S-A 


I 


RETURN      BUSINESS  LIBRARY 

TO^^     Stephens  Hall                          642-0370 

LOAN  PERIOD  1 

-  SEMESTER 

2                      : 

3 

4 

5                               ( 

b 

ALL  BOOKS  MAY  BE  RECALLED  AFTER  7  DAYS 

DUE  AS  STAMPED  BELOW 

FORM  NO.  DD  16 


UNIVERSITY  OF  CALIFORNIA,  BERKELEY 
BERKELEY,  CA  94720 


U.C.BERKELEY  LIBRARIES 


CDMDflflDBm 


